Blue dots are monthly. The black line is the quarterly average.
Today, the Bureau of Economic Analysis released the latest data on personal income and spending. Consumer spending decreased for the sixth in seventh months, which worries economists because it represents approximately 70 percent of economic activity. However, there was one potentially bright spot in the generally grim picture.
For the first time in decades, consumer saving (as a percentage of disposable income, meaning the money left over taxes) appears to be on the increase. On the chart above, the blue dots represent monthly data, which is prone to some noise, and the black line is a quarterly average.
As Americans struggle to pay off the credit cards debts they ran up in better times, have they learned their lesson? Many economists think so, predicting that the savings rate will rise above six percent, which was common before the 1990s.
Some economists argue that consumer saving is a good thing because it provides banks with additional capital to make new loans. However, Keynesian economists would argue that such a change creates a Paradox of Thrift, which Paul Krugman described last month and David Kestenbaum reported on last week — basically, when you save money by not buying lunch, the restaurant and its workers lose out. Check it out and let us know whether you think this higher savings rate is a good thing.