Personal savings flat once more

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A downturn in the economy or the stock-market usually causes people to pause spending to see where the chips will fall. Even people/businesses who think their jobs/revenues are relatively secure become cautious. This caution, in turn, implies less sales for some businesses, creating a downward spiral. Only to a point, though: as it spirals down, business profits start to increase and personal savings increase too. Confidence starts to come back.

Savings rate: The red circles in this chart show temporary increases in the Personal Savings Rate during recessions. Unfortunately, after each recession the personal savings rate started to decline once more.


We see that the savings rate has flattened once again. This is the flip-side (and downside) of confidence. [Update (2017/June: This rate still remains mostly above the 5% mark]

Retirement confidence: Compared to previous years, workers who are still employed are less confident that they will have enough money to live comfortably in retirement. (Source: EBRI Retirement Confidence survey). About 28% say they are "not at all" confident, compared to about 10% - 15% before the current recession hit.

Here's my rough chart, pulled from the EBRI details. It shows the breakdown (total 100%) in three categories of confidence.

On average, social security makes up over 40% of retirement income, and this is likely to continue for the middle class and below. The upper middle class, will get less than was promised, but often they're also the ones who saved a bit more on their own. The rising labor-participation rate among older workers shows that some are adjusting by working longer than they'd expected. (For most, one extra year of work can mean in inflow higher than multiple years of returns on their retirement accounts.)

Spending: According to a Gallup poll, in 2009, about 50% of Americans said they were "spending less". Today, only 40% say they're doing so. This is to be expected as confidence grows. When the recession hit, the bulk of the working population who still have their jobs pause large expenditures, cut out a few luxuries, and shop smarter. As things settle down and the world has not ended, things go back to normal.

As this Bloomberg article says, people have been more willing to raise their purchases of cars and durable goods, but are still cautious about spending on services. Where I live, the price of a haircut has not budged for almost a decade! 

What's next: As a group, Americans need to save more. The downside of growing confidence is that people stop fixing their spending patterns. It would be great if Washington would re-start the conversation about Social-security, to remind people that they need to be saving more, because the government will be giving them less. That's not on the cards. Perhaps a mini-recession within this recession could be a wake up call! 



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