Save or spend? It’s one of our favorite issues here at MinnEcon. I believe this recession is shifting American saving and spending patterns permanently away from consumption and toward savings.
The latest evidence? Numbers released today from the Commerce Department.
Personal saving as a percentage of disposable personal income was 5.7 percent in April, compared with 4.5 percent in March.
Disposable income rose 1.1 percent in April over March, thanks largely to the federal bailout, which lowered current taxes and increased government social benefit payments, the department said.
Personal consumption spending slipped 0.1 percent.
The excellent economic blog Calculated Risk today notes personal saving as a percentage of disposable personal income was the highest in 14 years (see graph below).
So after two-plus decades of hearing about how U.S. citizens spend too much and save too little compared to other nations, is the worst recession in more than 25 years compelling Americans to change their savings and spending habits? I think so.
We’ve seen evidence in surveys earlier this year. And citizens from our Public Insight Network have been telling us through the winter and spring they were pulling back on purchases, are saving what they can and otherwise wary about extending themselves with any kind of spending.
I understand that consumer spending is crucial to the economy, but I think it’s a good thing for us as Americans. Our rising debt drove our consumption and, as we’re witnessing, that’s unsustainable.
Yeah, it’s possible this is a short term change and that we’ll be back to our spending/consumption/debt days when the economy recovers completely. I also know experts keep telling us that we’ll mess up the economy even more if we don’t start spending our dough.
What’s the right thing to do? I don’t expect people to stop buying stuff. But who can argue that’s it would be a bad thing for the pendulum to swing back toward lower debt-to-income ratios and greater personal thrift?
You can add your voice and help MPR News get a better perspective on what’s what happening by taking your own economic pulse.
Below are some recent responses from our audience on money issues. Send us a story and we’ll add it to the map.