Power & Market

Personal Saving Falls to Lowest Rate Since 2007

Personal Saving Falls to Lowest Rate Since 2007

According to the US Bureau of Economic Analysis, the US saving rate hit 3.1 percent in September. September's rate was the lowest saving rate reported since December 2007, when the rate was 3.0 percent. 

The BEA defines personal saving as equal to personal income less personal outlays and personal taxes.

While the current rate represents the lowest rate in nearly a decade, the rate had fallen even lower during the expansion between the dot-com bust of 2001 and the beginning of the 2007-2009 recession. It had fallen to 1.9 percent in July 2005 which remains a multi-decade low. 

Total saving fell during the third quarter of this year to the lowest level reported since the first quarter of 2008. 

Moreover, the year-over-year change in personal saving has declined for the past seven quarters in a row. During the past 50 years, saving has never been negative for so long, although the saving rate did decline for five quarters in a row during the lead-up to the 2001 recession. It also fell for five quarters in a row in the wake of the 1990-91 recession. 

The decline in saving could be due to several factors. Asset-price inflation (as with housing prices) may be leading to lower saving rates as home owners and renters are left with less to save in response to higher monthly payments for housing. Nearly a decade of very-low interest rates may also be encouraging consumers to increase spending. Subprime auto loans, appear to be growing in popularity with lenders. Indeed, lenders are so flush with cash they want to lend that there's a now a subprime auto-loan program for refugees. And, of course, declining savings could also be due to psychological factors related to the current bubble economy. For many consumers, 2008 now seems like a distant memory. While fear of financial hardship spiked saving rates in the wake of the last recession, many consumers may simply be assuming that there's little risk of a severe economic shock, so saving ceases to be a top priority for many households. 

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