The employment picture is improving. Housing demand is rising. The stock market is rallying and the Dow is up nearly 50% since March. Newsweek even declared the recession over in a recent cover story. So, maybe it isn't a surprise that consumers appear to be returning to their free-spending ways even before the Great Recession is officially declared kaput. According to the Commerce Department’s latest reports, Americans’ personal savings rate (as a percentage of disposable income) fell to 4.6% in June, compared with 6.2% in May. And the May savings rate was revised lower from 6.9% originally.
Of course, you can’t make too much of one month’s data. And we're still saving more than we did before the economic crisis hit. But if the economy continues improving, it will test the staying power of our new-found frugal money values. Have Americans have really become a nation of savers? Or were we only motivated to be thrifty when we thought we were facing another Great Depression?
To get a sense of what's happening, look at why the savings rate dropped off in recent months. One reason the savings rate dropped in June is that federal stimulus checks arrived in May. That likely goosed the savings rate in May and made the comparison with June unfavorable. Meanwhile, personal spending rose slightly more than expected. The cash for clunkers program likely will give consumer spending a boost again when July numbers are reported. It’s too early to tell if these are long term trends at play. But, in the short term, if American consumers continue to spend more, that could give the nascent economic recovery the kind of monetary boost it needs to gain steam. More troubling (if you think Americans need to be saving more and not spending so much) is that personal incomes also fell sharply in June for the fourth straight month. Wage and salary cuts simply make it hard to sock away money, no matter how motivated you might be.
Tell us what you're doing. Are you still saving more money than you did before the recession? Has the improvement in the economy made you feel more confident about spending more and saving less? Or has your savings rate fallen for reasons beyond your control?