Savings Rate: How Much Higher?
An increase in the U.S. savings rate is good news over the long term. But if the steep incline continues, it could jeopardize economic recovery.
The savings rate isn’t likely to shoot much higher in the coming months. There’ll be no quick return to the 9% to 12% level common during the 1970s and early 1980s, which would have a devastating effect on consumer spending. Every percentage point increase in the savings rate knocks about $115 billion off consumer spending—by far the biggest driver of the economy and the biggest question mark about the strength of the recovery.
A more gradual rise will simply dampen consumer spending growth, not stifle it. Look for the recent steep incline in the savings rate to flatten out, settling between 7% and 10% over the course of the next few years. A decades-long downtrend hit bottom at 1.2% during the first quarter of last year, before rising a remarkable four percentage points to 5.2% in the second quarter of this year.
A surging stock market during the 1990s followed by a boom in housing prices starting around 2002 encouraged many households to spend just about every dollar of annual income—and then some. Not only did the savings rate plunge, outstanding credit soared. But recent stock market losses and lower housing prices dealt a severe blow to net worth. Combined with persistent concerns about job security, those factors should keep Americans from resuming their profligate ways.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Meanwhile, increased job growth next year should buoy consumer spending, helping to offset the negative impact of consumers socking more money in the bank. By early 2010, businesses should begin hiring again, accounting for modest net job growth. While it won’t be enough to offset growth in the labor force—causing the unemployment rate to continue to climb—the increase in the number of Americans earning paychecks is likely to allow consumer spending to tick somewhat higher.
For weekly updates on topics to improve your business decisionmaking, click here.
-
Stocks Chop as the Unemployment Rate Jumps: Stock Market TodayNovember job growth was stronger than expected, but sharp losses in October and a rising unemployment rate are worrying market participants.
-
Should You Renew Your CD?With rate cuts impacting earnings, we examine if now is a wise time to renew CDs.
-
7 Ways to Plan Now to Save on Medicare IRMAA Surcharges LaterUnderstand the critical two-year lookback period and why aggressive planning before you enroll in Medicare is the most effective way to minimize IRMAA.
-
AI Appliances Aren’t Exciting Buyers…YetThe Kiplinger Letter Artificial intelligence is being embedded into all sorts of appliances. Now sellers need to get customers to care about AI-powered laundry.
-
What to Expect from the Global Economy in 2026The Kiplinger Letter Economic growth across the globe will be highly uneven, with some major economies accelerating while others hit the brakes.
-
The AI Boom Will Lift IT Spending Next YearThe Kiplinger Letter 2026 will be one of strongest years for the IT industry since the PC boom and early days of the Web in the mid-1990s.
-
Amid Mounting Uncertainty: Five Forecasts About AIThe Kiplinger Letter With the risk of overspending on AI data centers hotly debated, here are some forecasts about AI that we can make with some confidence.
-
Worried About an AI Bubble? Here’s What You Need to KnowThe Kiplinger Letter Though AI is a transformative technology, it’s worth paying attention to the rising economic and financial risks. Here’s some guidance to navigate AI’s future.
-
Will AI Videos Disrupt Social Media?The Kiplinger Letter With the introduction of OpenAI’s new AI social media app, Sora, the internet is about to be flooded with startling AI-generated videos.
-
What Services Are Open During the Government Shutdown?The Kiplinger Letter As the shutdown drags on, many basic federal services will increasingly be affected.
-
The Economy on a Knife's EdgeThe Letter GDP is growing, but employers have all but stopped hiring as they watch how the trade war plays out.
