Posted on 09/02/2005 3:29:09 AM PDT by thinking4me
U.S. savings rate falls below zero
Inflation wipes out gains in personal incomes
WASHINGTON (MarketWatch) - U.S. consumers spent more than they earned in July for just the second time in the last 46 years, the Commerce Department said Thursday.
Personal incomes increased 0.3% in July, while spending soared ahead by 1%. As a result, the personal savings rate tumbled to negative 0.6%, the lowest since monthly records began in 1959. Read the full report.
Quarterly data show negative savings rates for several quarters during the Great Depression. The savings rate was negative 0.2% in October 2001 and was 0% in June.
Negative savings rates are possible if consumers spend by selling assets, dipping into savings or borrowing against future income......
Thanks for the post and link. Too many of these people hear Rush say, "They only count savings in banks." and believe it.
I guess my point was that I agree with the other poster, no one I know (with the caveat that I'm a white-collar employee with a defense contractor) with any real money keeps it in a savings account anymore. He had a valid point in that the article talks about savings rates in only the strictest sense, and much of what might have been kept in savings accounts in decades past is now invested instead. I think it would be interesting to see a more detailed survey that included market investments as well as traditional savings accounts.
But not capital gains.
So what does my savings/investing rate of 40% of gross income mean for me?
You stole my old tag line! But that's OK. I promise I won't tell Red. (fingers crossed behind back)
Aw and I thought I was being original...
So did I! I'm sure there were others before me as well.
I'll be home after the meeting.
The way the government measures this is flawed because it tracks what is left of Americans' disposable income each month rather than calculating what people put in bank accounts, brokerages and other places. Look at the flows every month into mutual funds and other investments. It has to be coming from somewhere.
Instead of measuring that activity, the Commerce Department computes the personal savings rate (which is intended to only track current savings and not previously invested assets) by calculating monthly after-tax income from many sources, mainly wages, dividends, interest, rents and employer contributions to pensions, and then subtracting expenditures.
This method understates income and overstate expenses mostly because it does not count capital gains from the sale of stocks or homes as part of disposable income, but it does count capital gains taxes as expenditures. It also counts the purchase of a car, in a lump sum rather than dividing it up into payments as most people do.
Just because Americans spend prolifically doesn't mean they don't save. The U.S. Treasury data shows that Americans have earned $3.5 trillion in capital gains since 1997. This is more than the combined gains of the preceding 20 years. Household net worth is almost $49 trillion - double what it was just a decade ago - and only about 20% of this wealth comes from homeowner equity.
The national debt, as a percentage of household wealth, is a smaller amount now, at just under 14%, than it was in 1994 when it was about 16%.
Our income and our wealth have grown faster than government spending. That's a good thing. Additionally, federal spending, as a percentage of household wealth, has declined by almost half during the past decade.
Finally, public debt as a percentage of GDP has gone down from 66.0% in 1994 to 60.3% in 2004.
Much obliged, thanks for the analysis.
Thanks for the explanation. It makes you wonder why the feds calculate it this way. What do they have to gain to present savings as a negative number? In my mind the govt only does things to propagate itself. What would the ramifications be if they calculated it according to your explanation?
These posts on this and similar threads aren't about understanding the data. They are about getting the opportunity to say how much some poster is investing how he has maxed out all retirement savings, how we are making a killing in the equities markets, real estate, gold...
When you understand that, you will understand where they get that nonsense.
You never did answered our questions:
1. Why should I invest my disposable income in instruments the government recognizes as "savings" instead of earning 3 or 4 times that return in individual stocks or mutual funds?
2. How could we have had all that debt in 1929 when people used to save so much back then?
3. How could the dollar have weakened so much while we were still on the gold standard?
4. If I own 3 income properties with no mortgage, have $500,000 in individual stocks, $250,000 in mutual funds and $100,000 in gold but nothing in a savings account, the government says that I have no savings. Is this a good method for determining household wealth?
5. If inflation is so out of control why is the 10-year bond yielding only about 4.2%; and why has there been no rush to gold - which has fallen in value by more than half since 1980?
I would appreciate it of you explained this in your own words rather than linking us to anything from Bernie Sanders or Paul Krugman.
That's a good question. The moonbats think it's all done as part of a broader conspiracy to create tax cuts for the wealthy and to dismantle social security.
The political Right has brilliantly used this questionable data to fuel popular anxieties about the future and justify new policies that disproportionately benefit the rich — as well as to garner support for their plan to dismantle Social Security. Fortunately, some press reports, as well as some mainstream economists (see Gale and Sabelhaus), are taking these terrible savings numbers with a grain of salt, and for obvious reasons.
I like it!
Savings Scam - Cooking the savings rate promotes tax cuts for the wealthy
As such, "savings" is the amount available to acquire financial assets of virtually all kinds (e.g., savings accounts, checking accounts, securities, mutual funds, pension fund reserves, 401ks, etc.).
I think you need to check your link again. Nowhere in the text does it mention 401(k)'s specifically.
When it comes to pension plans, the savings numbers get even screwier. For example, money set aside in a 401(k) plan at work doesn’t count as savings because those are pre-tax dollars -– and not considered part of your “disposable income.” For older, so-called defined benefit pensions, the impact is even worse on the spending vs. savings picture. That’s because income statistics are based on the employer contributions to these plans, not benefits paid out -– which is a larger number. So retirees have a lot more money to spend than the official figures take into account.
Is all income considered savings? Then why would gains on stocks and capital gains be considered savings?
Home equity doesn't (for all practical purposes, exist, except on paper. It is not a tangible asset, as far as I am concerned. It is an asset based on a future sale. How can those items be considered a savings?
It seems there is a lot of numbers fudging going around. Most of the time it is govt vs. private enterprise that show the greatest discrepancies in numbers. Really, who does one believe? The numbers in your bank account or some economist who tells you that gas is really cheaper at $2.75/gal (when adjusted for inflation) than $1/gal? Numbers on paper rarely represent numbers in reality. That is true in engineering vs. practical application as well as economics.
Wrong.
When it comes to pension plans, the savings numbers get even screwier. For example, money set aside in a 401(k) plan at work doesn't count as savings because those are pre-tax dollars -– and not considered part of your “disposable income.” For older, so-called defined benefit pensions, the impact is even worse on the spending vs. savings picture. That’s because income statistics are based on the employer contributions to these plans, not benefits paid out -– which is a larger number. So retirees have a lot more money to spend than the official figures take into account.
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