Recession spurs saving trend
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TESS VIGELAND: We’ll get to the unemployment story in a moment but first, here’s my question this week: Can a leopard change its spots? And by leopard I mean you, the American consumer.
The Commerce Department says we’re socking away more money in savings than we have in more than 14 years. Really? And how long do we think that’s going to last?
Joel Rose tells us the answer could have big implications down the road.
Joel Rose: Jeff Gallus used to spend money as fast it came in. But last year, he had a bit of a windfall when he sold his old house and bought a new one. And he decided to start a savings account.
Jeff Gallus: You know, It’s difficult to say, “No, I need to save that money for a rainy day.” And I’m very, very thankful today that I did save that money.”
This week, Gallus was laid off from his job as an audio/visual consultant in Monticello, Minn., near the Twin Cities. He’s got enough money in the bank to last him at least six months. And when he does find another job, Gallus says he’s definitely going to continue saving.
Gallus: Yesterday I may have said, “You know, when the economy’s good, I don’t need to save.” But yesterday I was laid off. And so today I have a whole new viewpoint on savings. I can’t just live paycheck to paycheck like I once did.
Jeff Gallus may be a bit of an extreme case. But Americans in general have been saving more this year. In April, the personal savings rate topped 5 percent of income. That may not sound like much until you consider that a year ago, the savings rate was zero.
Christopher Carroll: Usually the saving rate goes up in a recession. But I think this time, it’s more likely to persist than in the typical experience.
Christopher Carroll teaches economics at Johns Hopkins University. Thanks to cheap and abundant credit, Carroll says Americans didn’t have as much reason to save during the last few decades. Now that credit has gotten harder to come by,
Carroll: They may return to the old-fashioned notion of having a supply of ready assets available in case of emergency.
Carroll points out that for much of the 20th century, we used to save a lot. In the 1950s and 60s, Americans saved between 5 and 10 percent of their incomes. There are signs we may be heading in that direction again.
Maryann Lepore: It’s kind of scary, because you realize, when you look back at the Depression era, and this could happen again.
Maryann Lepore is a customer at 3rd Federal Bank in Philadelphia. So far this year, the bank has seen a 12 percent jump in deposits. The bank’s president Kent Lufgin hopes this new thriftiness will persist beyond the recession.
Ken Lufgin: Once people get over this very nervous time, they’ll get back into a spending mode. I just do hope and I do believe that savings will become a little bit more of the plan for them than it has been over the last couple of few decades.
Fifty years ago, incomes were rising so fast that Americans could spend a lot and still have plenty left over to save. Now that incomes are mostly stagnant, more saving necessarily means less consumer spending. Stephen Wieting is an economist with Citigroup Markets.
Stephen Wieting: What I would think is that post-downturn, there won’t suddenly be a snap-back to former spending levels. We will grow again, as we always do. But we’re not going to attain sort of a high level of activity quickly.
Wieting says it’s a good idea for Americans to save more, but too much saving could slow down the recovery.
In Philadelphia, I’m Joel Rose for Marketplace.
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