American's Saving Rate Turns Negative
The American saving rate recorded it's lowest level ever since the government began keeping records in 1959 according to a new Commerce Department report. Consumer spending rose 1% much of it attributed to people continuing to take advantage of incentives offered by automakers to reduce their inventories of unsold cars
While spending rose 1%, incomes only increased 0.3%. The combination of increased spending combined with slower economic growth resulted in a savings rate of minus 0.6%. This is after recording a 0% savings rate in June.
While the savings rate numbers look bad, determining exactly how bad the overall saving rate is can be difficult to ascertain. This is due to how the Commerce Department calculates the savings rate. The Commerce Department uses the amount of disposable income, if any, that is left after spending and tax payments are subtracted. This formula fails to include capital gains and investments in pension plans when calculating the savings rate. This has lead to a paradox where Americans are not saving, but there net worth has been increasing.
Although the Commerce department numbers are not a precise measure of Americans money saving activity, it is a useful indicator. The negative numbers do indicate that consumers are using built up savings to finance their current spending. This has experts concerned about how long consumers can continue to spend with the current low savings rate.
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