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The Bad News Is People Saved Some Money

by Derek Sisterhen on August 5, 2010

I love reading consumer spending reports. The way they are written just makes me laugh because all the “bad” news is right up front:

“Last week the government said economic growth for the second quarter slowed to 2.4 percent. Many analysts believe it will dip further in the second half of the year as high unemployment, shaky consumer confidence and renewed troubles in housing weigh on the year-old economic recovery.”

Oh no! What are we going to do? Don’t Americans know that the only way to solve our economic troubles is to spend, spend, spend?

It’s your patriotic duty to buy appliances, houses, cars, clothes, movie tickets, more clothes, and take vacations. You don’t want to be a traitor, do you?

(So, we read a little further in our spending report…)

“The personal savings rate rose to 6.4 percent of after-tax incomes in June, the highest reading in nearly a year. The savings rate is now about three times the 2.1 percent average for all of 2007, before the recession began. Households chose to save the extra money rather than spend it. Higher savings restrain spending in the near term. But the extra resources allow households to repair their tattered balance sheets.”

Another fault of consumer spending reports is that they lag. Right now, we’re reading about what happened in June, a full five weeks after the fact. Since the summer months are notorious for lots of unbridled spending, I’ll be interested to see how the savings rate fared in July.

We’re still seeing a shift in a large portion of our country toward conservative money management. Recognizing that personal savings mitigates a whole host of risks we face – from emergency room visits, to car repairs, to job loss – means that we’re finding some sea legs in the choppy recessionary waters.

And when the bad news is that people are saving money, I’d say many of us might just make it out of this storm.

  • Deacon Bradley

    Classic! Peter Schiff always has a great analysis to the 'we need more spending' notion that's been popular lately. Essentially he argues that saving, not spending is the life-blood of an economy. Man I hope that guy gets in office somehow. Here's an interesting article from around the time that Bush, Paulson, and Obama collaborated to… well, you know.

  • Derek Sisterhen

    Thanks for the comment, Deacon. The short-term pullback from saving money has so much long-term upside it's crazy. But, taking a long-term approach is not very sexy or popular – in business or politics.

  • Dave Posner

    I don’t know if you recall this or not, or even heard it the first time, but during his first State of the Union speech President Obama called credit the “life-blood of the American economy.” I’ve been screaming ever since that if that is true, we are in desperate need of a transfusion.

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