My comment: This is not the year of the Rat. This is a year of the Ox, a year to deploy savings in realistic down-to-earth long-term investments, but good to know that things move ahead. Savings is exactly what US economy needs.
http://blogs.wsj.com/economics/2009/01/20/consumers-shift-to-saving/ During most of the last expansion, U.S. consumers saved almost nothing from their current incomes. Conspicuous shopping was all the rage; soaring home values and stock prices made people feel wealthier. But the current recession has changed that mindset. And as U.S. households add more to their nest eggs, the economy will have to adjust to reduced consumer demand. If so, expect more store closings, bankruptcies and retail job layoffs. Other discretionary industries, from restaurants to casinos to tourism to health spas, will also feel the brunt of the new urge to save. Financial planners and banks may benefit. But investors, once burned by Wall Street, may be reluctant to buy stocks and bonds any time soon. According to Bureau of Economic Analysis data, U.S. households saved less than 1% of their disposable income from 2005 until April of 2008 — far below the 10% posted in the early 1980s. (Data from the Federal Reserve Board make the situation look even worse: Personal savings, excluding investment in durables, fell into negative territory in 2005 and 2006.) But despite the meager additions to their nest eggs, households still got richer, at least on paper. Fed data show that household net worth rose by more than $10 trillion in the three years ended in 2007. Direct holdings of equities and mutual funds jumped $3.4 trillion, real estate values rose $1.9 trillion, and credit-market instruments increased more than $800 billion. In effect, U.S. consumers found a way to have their cake and eat it, too. Of course, there were other reasons besides soaring asset values for the dearth of savings. Because the developing world was socking away money religiously, there was a global savings glut. The U.S. government didn’t have to depend on its own citizens to fund huge fiscal deficits when foreign central bankers and sovereign wealth funds were willing to buy Treasury debt. The U.S. economy could increase its current account deficit thanks to investors worldwide. In addition, in a world of aspirational retailers, product placement in media, and heavy advertising overall, households developed a preference for grasshopper-esque shopping over ant-like saving. A team of three economists looked into why the national saving rate fell in recent decades, not just in the U.S. but also in France and Italy. They found that each society began to feel less obligated toward leaving capital to future generations. In the economists’ view, the savings rate in each country would have been much higher “had American, French, and Italian societies not become so focused on immediate gratification.” In other words, we devoted more money to iPods, less to IRAs. But then the housing and stock markets crashed. From the end of 2007 until the third quarter of 2008, household wealth shrank by $5.6 trillion. Faced with disappearing 401k retirement accounts, plummeting home prices and a recession that has stolen away millions of jobs and cut into salaries, consumers are salting away more cash. By November, the U.S. savings rate had edged up to 2.8%. It is very likely the rate will keep rising since consumers tend to save more during recessions. Financial advisers are telling clients to have a nest egg equal to six months of expenses in the event of a layoff. Hoarding has become fashionable. That’s why last summer’s rebate checks failed to stimulate the economy. Few taxpayers spent the money; most saved the cash or used it to pay off debts. And it is why many retailers are struggling. The U.S. economy is organized around the consumer as growth engine. That will no longer be the case in coming years as households adjust to a new financial reality. Alan Levenson, chief economist at T. Rowe Price Group Inc., estimates that the rise in savings in the fourth quarter accounted for the roughly 6.5-percentage-point wedge between the annualized growth rates of nominal after-tax income (down 1.1%) and nominal consumption (down 7.7%). Levenson writes that “the spike in financial market and economic uncertainty likely encouraged caution generally.” As a result, he forecasts that the savings rate will rise about two percentage points per year to hit between 6.5% and 7.0% by the end of 2010. That would be the highest yearly savings rate since 1992. If one assumes the recession holds disposable income flat in 2009 (with the expected tax cuts offsetting earnings lost through layoffs) and income grows about a very modest 2% in 2010, the new additions to savings would shift about $400 billion away from consumer spending over the next two years. In the short run, the shift to savings will be tortuous for all those who depend on consumer spending. But in the long run, a higher savings rate will be a good thing. It will be the only way that the U.S. can finance the retirement of the baby-boom generation, whittle down its massive current account deficit, and pay down the humongous federal deficits that are coming our way. –Kathleen Madigan --~--~---------~--~----~------------~-------~--~----~ You received this message because you are subscribed to the Google Groups "World-thread" group. To post to this group, send email to [email protected] To unsubscribe from this group, send email to [email protected] For more options, visit this group at http://groups.google.com/group/world-thread?hl=en -~----------~----~----~----~------~----~------~--~---
