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National savings rate is down

Amy Scott Jun 30, 2006

TESS VIGELAND: Consumers took a break from their shopping spree last month. The Commerce Department says spending slowed in May, thanks in part to high gas prices that depleted cash reserves. Wait… did I say cash reserves? My mistake. On average… we have no cash reserves. Our national savings rate dropped to negative 1.7 percent. It’s the 12th month in a row we’ve been in the red. So why aren’t economists all worked up about it? Marketplace’s Amy Scott has some answers.

AMY SCOTT: For one thing, we’re still in the rough draft phase. Every summer the government does a major revision of what are called the National Income and Product Accounts, or NIPAs. They measure production, spending and income. Analyst Scott Hoyt with Moody’s Economy.com says the revisions could substantially change the saving rate.

SCOTT HOYT: And in fact we had one period, I don’t know, five or six years ago, when we thought the saving rate had gone negative. And then when we got a set of NIPA revisions all of a sudden it had never been negative in history.

The measurement also ignores capital gains. Former Fed economist Dean Croushore says that leaves out a huge chunk of income for wealthier people, who then look like they’re bouncing checks all over the place.

DEAN CROUSHORE: If you look at people at the lower end of the income distribution, they’re saving rate is positive. It hasn’t really fallen much in the last decade. It’s really those rich people who have become richer who are causing the saving rate to be negative.

Thanks a lot, rich people. One economist who doesn’t take today’s news lightly is Josh Bivens with the Economic Policy Institute. He says even if it turns out Americans have been socking away a little money each month, they’re still saving far less than they did 10 or 15 years ago.

JOSH BIVENS: And every bit as problematic is how the economy will respond when we do start saving more.

Practically every measure of the economy depends on how much we spend. Saving more means spending less. Bivens says given the recent stock market declines and a slowing housing market, that’s exactly what people might start doing.

In New York, I’m Amy Scott for Marketplace.

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