savings

Consumer savings rate dips

Highlights
  • The savings rate moved to the positive side during 2007.
  • Even the most ardent savers aren't looking for a return to the early 1980s.
  • If you buy CDs be sure to stick with short-term maturities.

We may be stashing aside less savings, but that doesn't necessarily mean we're returning to spendthrift ways.

After a dismal couple of years, financially speaking, Americans have let their combined personal savings rate slip a bit off the high of 6.2 percent achieved in May 2009. The U.S. Bureau of Economic Analysis says that personal savings as a percentage of disposable personal income skidded to 4.7 percent in November.

For a little perspective, let's start with the 18-month stretch from mid-2005 to the end of 2006 when the personal savings rate languished in negative territory. The savings rate moved to the positive side during 2007 but for the most part, remained pretty much below 1 percent until very late in 2008 when it accelerated toward the May 2009 high. Since May the personal savings rate has trended below 5 percent.

Still curtailing spending

While the drop coincides with a bullish run on the stock market that began last March, experts say it doesn't prove that consumers have abandoned efforts to curtail spending, pay off debt, and stash whatever they can into savings vehicles that pay next to nothing in interest.

"A drop from 6.2 percent to 4.7 percent is noticeable but it's not necessarily an indication of a renewed shift downward," says Dorsey Farr, CFA and principal at French Wolf & Farr in Atlanta, and former chief economist at Wilmington Trust. "The two motives for savings are precautionary -- to weather a storm such as we've just experienced, and retirement -- to have a store of assets to provide income during retirement.

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"Many people counted on an existing portfolio that was perhaps too small, as well as equity in their home and now they're questioning whether they have sufficient savings, not only for the precautionary needs but also for retirement. So, our view is that this is more of a long-term trend where we'll see renewed interest in savings at higher rates than we've seen so far for a sustained period of time."

Farr says he'd like to see an aggregate personal savings rate in the 7 to 10 percent range. Rebuilding the stock of savings -- the accumulated savings -- will happen as debt is reduced and household balance sheets are repaired. To accomplish that, says Farr, will require that the savings rate be higher for a sustained period, not just a few months.

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