Newspaper article The Christian Science Monitor

US Savings Picture Brightens a Little

Newspaper article The Christian Science Monitor

US Savings Picture Brightens a Little

Article excerpt

America still has debt problems, but as of this week the phrase "negative savings rate" no longer applies to the nation's household habits.

Through June of this year, US citizens have socked away $164 billion. Moreover, in releasing its annual revision of prior-year data, the Commerce Department now says that Americans earned more income than they spent in 2005 and 2006 - a reversal of prior tallies showing a negative savings rate for those years.

This doesn't mean that no debt burden hangs over American households. But it indicates a healthier outlook for consumer finances - a welcome boost as the economy navigates the worst housing-market slump in a generation.

The improving savings picture also hints that reform is possible - perhaps even inevitable - for a nation that, by some measures, still lives on the financial edge.

"People in some sense were doing what the market was telling them to do," by borrowing during a period of low interest rates and fast- rising home prices, says Paul Kasriel, chief economist at the Northern Trust Co. in Chicago. "Now it's in reverse," as interest rates have risen and the key family assets - houses - have stopped soaring in value.

In the long run, Mr. Kasriel foresees an era of belt-tightening for households and for the nation. The shift toward a positive savings rate could be an initial step in that process.

The savings-rate revisions, released Tuesday, were also incorporated in the Commerce Department's latest economic snapshot.

On Friday, the agency said the nation's gross domestic product grew at an annual pace of 3.4 percent in the second quarter. Because personal spending was lower than previously reported, the growth of GDP was revised downward for the years 2003 through 2006. Economic growth averaged 3.2 percent during those years, down from 3.5 percent in previously published estimates.

Weaker growth then may mean stronger growth now, some economists say. Since consumers weren't quite as profligate as believed, they could have more staying power in the months ahead.

"The overall stress on consumer spending is not nearly as severe as the previous data indicated," economist Charles McMillion of MBG Information Services writes in a commentary on the data. …

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