Chart of the Day: Any bets on the savings rate?

By Prieur du Plessis, on October 2nd, 2009 posted in: Economy, Investment

I published a post yesterday quoting Richard Koo, chief economist of Nomura Research Institute and author of Balance Sheet Recession, as saying American consumers are suffering from a balance sheet problem and will not increase consumption until their personal finances are back in order. The chart below, courtesy of Clusterstock, leaves scant hope that individuals will stop saving and start spending again anytime soon.

“For one thing, we’re way below the personal savings rate we saw in the early 70s, let alone the savings rate in the pre-Greenspan era. With the recent wealth shock and the aging population, there are a lot of folks eager to hold on to every last dollar they’ve got,” said Clusterstock.

Source: Joe Weisenthal and Kamelia Angelova, Clusterstock – The Business Insider, September 30, 2009.

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October 2, 2009 at 11:23 am

Of course the ‘savings rate’ is slightly misleading in what it implies about consumer behaviour.

The savings rate can rise if people are borrowing less i.e. driven by the reduced circumstances of the banks, tighter lending criteria, higher interest rates and less collateral against which to lend.

My experience is that whilst people may hunker down a bit, the bigger issue for them is being unable to borrow as much as they previously could. You will note that deposit balances excluding interest credited are actually falling.

October 2, 2009 at 11:30 am

And just to add to the point that reduced lending also contributes to a higher ‘savings rate’, it may also be true that any debt forgiveness programme (write offs) could also presumably increase the savings rate as the level of consumer borrowing declines.

You would have to check that – and also I don’t know off hand the scale of debt forgiveness and whether this is material.