The Federal Reserve Bank of New York today released How Worrisome Is a Negative Saving Rate?—the latest article in its series Current Issues in Economics and Finance.
Author Charles Steindel explains that when the U.S. personal saving rate took a negative turn in second-quarter 2005, it raised concerns that Americans may have to curtail spending and accept a lower standard of living as they pay off rising debts.
However, the risks to household well-being may be overstated, says Steindel. Taking a closer look at saving trends, he argues that the surge in energy costs may have temporarily dampened saving, while the accounting of household income from stock holdings may be skewing saving estimates. In addition, broad measures of saving have remained positive, and household wealth—assets such as stocks and homes, less debt—is on the rise.
Still, Steindel cautions, low levels of household, private and especially national saving may take a toll over the long run and thus bear watching now.
Charles Steindel is a senior vice president in the Macroeconomic and Monetary Studies Function of the Research and Statistics Group.