In its latest report, the BEA revised spending down and income up. As a result, the savings rate rose.
The Wall Street Journal claims the Personal Savings Rate is a Surprising Bulwark for the U.S. Economy.
On the eve of the last two recessions, American households were unprepared. Years of appreciating stock portfolios, rising home values and improving job prospects had convinced consumers that they didn’t need to save much of their income.
So when unemployment rose and asset prices fell in the downturns that started in 2001 and in 2007, consumers drastically reined in spending and the economy contracted.
Until a few weeks ago, some economists feared history was in the process of repeating itself. Official numbers suggested saving was again out of style as the current expansion enters its 10th year.
Recent data has altered the picture. Households have been saving significantly more of their after-tax income for several years, according to revised data released last month by the Bureau of Economic Analysis.
Take just the first quarter of this year: The agency more than doubled its estimate of the personal saving rate–the difference between disposable income and spending—to 7.2% from the 3.3% estimated previously.
The new number exceeds the 6.4% average rate recorded since 1990, and is almost three times the most recent low of 2.5% in 2005.
The first-quarter changes alone amounted to $613.5 billion in additional saving, at an annual rate, recovered from between the statistical couch cushions—enough money to buy more than 20 million Ford F-150 pickup trucks or more than 600 million iPhone Xs.
While slight adjustments to economic data are common, the revision to the personal saving rate was the biggest since at least 2002.
“That was an amazing set of revisions,” said economist Joel Naroff, who until recently thought consumers were “largely tapped out” and represented a major risk to the economic outlook. Now, he says, the picture is “a lot less negative.”
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