Real Savings Rate

From the July 14 Editors' Weblog: In Adjusting to the "New Normal," we wrote: "[S]avings rates have headed higher. Borrowing is sharply lower. We're seeing a gradual return to the 'old-fashioned' wealth-building techniques of the past."

That summary was based on data from the government's Bureau of Economic Analysis (BEA). But investment analyst Jon Markman, writing at MSN.com, says the BEA numbers aren't reliable. He points to widely divergent data coming from the investment research TrimTabs.

"The [BEA] reported that personal savings as a percentage of personal disposable income was a stunning 6.9% in May, the highest since December 1993," Markman wrote. "[In contrast, the] TrimTabs' analysis, which is based on real-time income tax deposits rather than mathematical models, suggests that the real savings rate is a lousy 0.9%, not 6.9%." The discrepancy, argue both TrimTabs and Markman, is largely because government analysts use outdated and faulty models that overestimate wages, salaries and dividend income.

In retrospect, we could have given more emphasis to the word "gradual" in June by writing it in bold, 20-point font! But we stand by our larger point that a shift in consumer behavior does seem to be underway.

Even a 0.9% savings rate is better than the negative numbers of recent years. And given that many formerly spendthrift people are trying to work against deeply entrenched behaviors, it's not surprisingly that the process of change is gradual. It's tough to go from being a spender to a saver overnight!

The real question is whether the new focus on frugality and long-term wealth-building will last once the economy finally improves, or whether people will revert to past habits. The answer likely depends on just how long the financial pain lasts.