The Bureau of Economic Analysis
Reported:
Personal saving -- DPI less personal outlays -- was a negative $146.8 billion in April, compared with a negative $128.2 billion in March. Personal saving as a percentage of disposable personal income was a negative 1.6 percent in April, compared with a negative 1.4 percent in March. Negative personal saving reflects personal outlays that exceed disposable personal income. Saving from current income may be near zero or negative when outlays are financed by borrowing (including borrowing financed through credit cards or home equity loans), by selling investments or other assets, or by using savings from previous periods. For more information, see the FAQs on "Personal Saving" on BEA's Web site.
Personal savings has been negative since the second quarter of 2005. So, the US is approaching almost a full year with a negative savings rate.
Why is savings important? First, suppose someone loses their job. Savings provides a cushion for the period between the loss of their first job and acquiring a new job. Considering establishment job growth during this expansion is the weakest of the last 40 years (a compound annual growth rate of .7%) and the personal indebtedness has increased substantially during this expansion (total household debt outstanding has increased from 7.1 trillion in the first quarter of 2001 to 11 trillion in the third quarter of 2005) , putting money away might be a good thing.
The classic attack on the official savings level is its method of computation. However, according to the FDIC the official level is accurate:
The single largest source of wealth for retirees is often an illiquid asset, real estate.11 It is useful, therefore, to look separately at non-real-estate assets for a realistic picture of available assets retirees have accumulated. Although 94 percent of families headed by persons ages 45 to 54 held at least one type of non-real-estate financial asset in 2004, the median holdings of financial assets for this group were only $38,600.12 These data include 58 percent of families that held a median of $55,500 in retirement accounts (which include individual retirement accounts or IRAs), but only 18 percent that held the next largest asset category, pooled investment funds ($50,000). Even fewer--less than 7 percent--held the third and fourth largest asset categories, other managed assets and bonds ($43,000 and $30,000, respectively) (see Table 3, next page).13 For the average person, financial assets would not last long in retirement.
The bottom line is pretty clear. If the economy hits a soft patch, a lot of people could be in trouble. Considering the new draconian bankruptcy, things cound get very ugly for many people.
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