Positive savings rate in the US

According to to the U.S. Bureau of Economic Analysis, the savings rate in the US has risen over the last two financial quarters and is in positive territory.

Although not showing a return to the (modest) levels prior to the consumption frenzy of the last few years, it is still an improvement. Given that an excess of consumption and a deficiency in savings by American households has been cited as one of the causes of the current economic crisis this is, in one sense, encouraging. However, it also has to be remembered that high levels of spending by American consumers were a significant contributor to the last economic boom (both in America and the countries which sold goods and services to those consumers). Less spending by American consumers has to result in less income for the companies and individuals who supplied goods to them. (The economic theory known as the paradox of thrift states that increased savings levels results in lower levels of income for the economy as a whole.)

A few comments on the savings data:

1. American households are doing the opposite of governments and central banks - they are spending less in the face of economic uncertainty and adversity;

2. American savings rates are still significantly below rates in Asia. In fact a savings rate of just over 1% is very low by any measure;

3. the data does not reflect the wealth effect of rises and falls in asset values;

4. if the economy does shed jobs (and incomes for those still in employment declines), it is an open question whether the trend will be reversed as savings are drawn down to fund living expenses and/or households will make further cutbacks in spending thereby perpetuating the economic contraction.