In November 2017, the personal saving rate in the United States fell to a ten-year low, dropping to 2.9 percent. The last time the saving rate was lower than 2.9 percent was during November of 2007.
The Wall Street Journal reported last month that Americans are spending more and saving less:
Americans spent more and saved less in November, a sign that low unemployment, robust consumer confidence, the prospect of tax cuts and buoyant financial markets are underpinning a strong holiday shopping season.
Americans are saving at the slowest pace in a decade, likely in anticipation of continued job and wealth gains as stock indexes barreled to new records last month and the unemployment rate stood at a 17-year low.
If we look at saving rates in the wake of the financial crisis, we find saving rates quickly moved upward as consumers were unsure of the future and cut back on spending. Now, with employment growth solid, households are assuming that present conditions will continue, so are saving less and less.
Last week, we looked at how median net worth in the United States, as of 2014, was still below where it had been in 2001. It remained significantly below where it had been in 2007.
One of the reasons given (in an NBER report) for the stubbornly low net worth among Americans was the fact that Americans were neglecting to save money. In many cases, they were paying down debt, but we are also witnessing a troubling trend in which Americans are selling assets to pay off debts. But, as the report noted, “the reduction in assets was greater than the reduction of debt.”
Debt continues to be a factor:
The sharp fall in median net worth and the rise in overall wealth inequality over these years are traceable primarily to the high leverage of middle class families and the high share of homes in their portfolio. The racial and ethnic disparity in wealth also widened considerably. Households under age 45 saw their relative and absolute wealth declined sharply. Rather remarkably, there was virtually no change in median wealth from 2010 to 2013 despite the rebound in asset prices. The proximate cause was the high dissavings of the middle class, though their debt continued to fall.
As a final note, we might also consider saving in a larger historical context. Here we see personal saving as a percentage of disposable income.
In this case, at 3.8 percent in 2017, it has not returned to its pre-Great Recession levels, but of course remains well below where it was during the 1950s and 1960s, when it often reached above ten percent.