The U.S. personal saving rate marked an inglorious milestone in June, dropping to zero percent, the Commerce Department's Bureau of Economic Analysis reported last week. The zero-saving rate comes at a time when Baby Boomers are in their peak earnings years and presumably should be socking money away because they will start retiring in just six years.
The saving rate is personal savings expressed as a percentage of disposable personal income. This rate has been falling for 20 years. It was 10.8 percent in 1984, 4.8 percent in 1994, 1.8 percent in 2004 and 0.4 percent in May 2005.
Because many Americans are saving something, this means a lot of Americans are spending more than they make, which should come as no surprise because consumer debt has been growing about twice as fast as personal income during the past five years, according to Federal Reserve data.
Drew Matus, a senior economist with Lehman Bros., says a falling saving rate in today's environment "makes some sense." Job and income growth is decent, home and stock prices are rising, and many Baby Boomers are expecting to inherit wealth.
"The problem really comes if this perfect scenario doesn't continue. Let's say home price appreciation slows. All of a sudden, that saving that was being generated without you having to work for it has to be replaced by taking money out of your income," he says.
And what will happen when the Baby Boomers who are counting on their homes and stocks for income in retirement try to sell? Will they get what they hope? Will they drive down prices?
Source: San Francisco Chronicle, August 7, 2005
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