Savings At Lowest Rate Since Depression

Americans Spent Everything They Made Last Year — And Then Some

(CBS/AP)  Americans once again spent everything they made and then some last year, pushing the personal savings rate to the lowest level since the Great Depression more than seven decades ago.

The Commerce Department reported Thursday that the savings rate for all of 2006 was a negative 1 percent, meaning that not only did people spend all the money they earned but they also dipped into savings or increased borrowing to finance purchases. The 2006 figure was lower than a negative 0.4 percent in 2005 and was the poorest showing since a negative 1.5 percent savings rate in 1933 during the Great Depression.

"It's a problem we ought to worry about, but it's not necessarily a calamity," Newsweek and Washington Post columnist Robert Samuelson told CBS Radio News.

For December, consumer spending rose a solid 0.7 percent, the best showing in five months, while incomes rose by 0.5 percent, both figures matching Wall Street expectations.

"This negative savings rate is a recent shift. Only 10 years ago the savings rate was 4.5 percent. And 25 years ago, savings rates were in double digits," Peter Russo of Vanderbilt University tells CBS News.

People are spending because the economy has been so good, says Samuelson.

"Sooner or later, we think, the increases in value of the stock market and homes will not be great enough to reassure most Americans that they have enough savings, but right now, it hasn't stopped," he said. "It explains the continued strength of the economy."

The McGee family in St. Paul, Minn., may be a typical example. They’re middle class — Brian McGee is a salesman of hair care products and Andrea McGee takes care of their two boys, reports CBS News correspondent Anthony Mason.

"We're not the Rockefellers, but we're doing just fine," says Andrea. "I'm surprised by how much money we're making. And I'm constantly asking myself 'Hey wait a minute, how come we're running out of money at the end of the month?’"

Like most Americans, the McGees are finding it harder and harder to save. In fact, Andrea has found herself dipping into savings to pay their bills.

"We've been saying for years that we need to sit down and make a budget," says Andrea, "but we haven't done it."

In other news, the Labor Department reported that the number of newly laid-off workers filing claims for unemployment benefits dropped by 20,000 last week to 307,000. That improvement pushed the four-week average for claims to the lowest level in a year, indicating that the labor market remains healthy.

The savings rate has been negative for an entire year only four times in history — in 2005 and 2006 and in 1933 and 1932. However, the reasons for the decline in the savings rate were vastly different during the two periods.

During the Great Depression when one-fourth of the labor force was without a job, people dipped into savings in an effort to meet the basic necessities of shelter and clothing.

Economists have put forward various reasons to explain the current lack of savings. These range from a feeling on the part of some people that they do not need to save because of the run-up in their investments such as homes and stock portfolios to an effort by many middle-class wage earners to maintain their current lifestyles even though their wage gains have been depressed by the effects of global competition.

Consumers are likely to save less and spend more as long as the economy is strong, says Samuelson.

"I think the main worry here is whether or not it will be an adverse effect on the economy if there is a shift towards more savings on the part of households and families," he said — that is, spending less.

The 0.7 percent rise in personal spending was the best showing since a similar gain in July. It followed increases of 0.5 percent in November and 0.3 percent in October and reflected solid spending by consumers during the Christmas shopping season.

Consumer spending posted a solid rebound in the final three months of the year, helping to lift overall economic growth to a rate of 3.5 percent during that period, up significantly after lackluster growth rates in the spring and fall.

Whatever the reason for the low savings, economists warn that the phenomenon exists at a particularly bad time, with 78 million baby boomers approaching retirement age. Instead of building up savings to use during retirement, baby boomers are continuing to spend all their earnings.

The savings rate is computed by taking the amount of personal income left after taxes are paid, an amount known as disposable income and subtracting the amount of spending. Since the figure has dipped into negative territory, it means consumers are spending all of disposable income and then some.

For December, the savings rate edged down to a negative 1.2 percent, compared to a negative 1 percent in November. The savings rate has been in negative territory for 21 consecutive months.

Incomes were up 0.5 percent in December, the best showing since a similar increase in September.

On the inflation front, a gauge tied to consumer spending that is preferred by the Federal Reserve edged up by 0.1 percent in December. This gauge, which excludes volatile food and energy prices, was up 2.2 percent over the past 12 months ending in December, still above the Fed's comfort zone of 1 percent to 2 percent.

[olebd]

Don't I know it. Here's mu culprits:

Higher gas prices
Higher grocery prices
Higher real estate assessments = more taxes paid
Higher utilities
Higher tax rate

How are you supposed to save with everyday necessities rising faster than ever while pay raises only average about 2-3%?

[beehive21-2009]

Babyboomers,remember getting under your desk in first grade,nuke training.We don't give a damm, we have seen the mushrooms and probably feel the day will come, when the nukes will fly,leaving no credit cards or banks to pay, We don't give a damm.

[wny14127]

Of course the savings rate is negative. Why bother saving money in the bank when you have to pay taxes on the interest? Get 5% from the bank in interest, add the interest to your income and pay increased taxes on it.

If the smart people in the Commerce Dept. really wanted us little people to save our money, they'd work with our political leaders to give us a tax break. How about the first 5K in interest is not taxed, the remainder is taxed at normal rates?

No, this would be a rational thought process that does not happen in D.C.

The rich have all the tax breaks and shelters etc., for the middle class it's nothing but crumbs and articles like this about how we don't save.

Hey, D.C., it's the economy and taxes and gas prices and joblessness and low-paying jobs and outsourcing and corporate greed and increased health care costs and pension plans that have gone away and billions spent in stupid wars.

[heresmy2cent]

No one wants to be the richest person in the graveyard.

Spend it all now. That is the new American way of life.

[johnshaft4]

Quit your whining...someone has to fund the new Zionist state, "The Peoples Republic of Halliburton" (formerly known as Iraq, Iran and Syria.

[bigwhtpony]

People are probably trying to buy their goodies before the Dems raise taxes on us. Pretty soon, the only people who will be able to afford to buy luxury items will be the non tax paying people on welfare.

[mbcsmith]

A useless statistic that doesn't take into account millions of 401(k)'s

[rhs648]

Yes, personal savings are down. Instead, consumers have stocks, bonds, mutual funds, money markets, treasury notes, 401k plans, tax free municipal bonds, and equity in their homes

[dixiebobh]

Business 101-It is not how MUCH you MAKE that matters, it is how MUCH you SPEND. Simple dear Boomers. Two cars (maybe more) - TV sets in every room in the house - A boat or motorcycle? -After all private school for Junior is a "necessity", really?

The list goes on and on. From one that learned the hard way.

Bob

[suiteo1]

I wish I could tell my boss that my salary just increased by 5% and there%u2019s nothing he can do about it, just like the utility and gas companies tell me the rates are going up and there%u2019s nothing I can do about it! It takes just that much more out of any kind of savings that I have. So what is the point of this article? How is it going to help any of the middle class or the poor?

Mr. Samuelson would be of more help if he can SOLVE these problems rather than sitting on his analytical duff writing junk like this and rubbing our noses in it!

[wayfedup]

WOW!!! WHAT A "robust" economy! We're headed for "THE GREAT-EST DEPRESSION, thanks to our benevolent "decider" who decides who gets what when, and how... The middle class is DOOMED, if this keeps up.

[Syndicate]

It would help to know exactly what savings are? Are they talking about money in the bank? Stock market? Under the mattress? Frankly with the rate of return on a savings account I can see why people are not interested in saving.

[generey]

And GWB JUST stated that the economy is fine.

ROFLMMFAO - AGAIN

Americans - Asleep at the wheel.

[olebd]

Blame technology too. Think about what we pay for these days:

Internet service. Mine for cable broadband is $46 per month.

Computer - $1,600+ when all the bells and whistles are added.

Cell phone - $80-$100 per month

Cable or satellitte TV - $50-$100 per month

The list goes on and on and doesn't include all the activities that are available for the kids these days such as a sport, martial arts, video game systems.

Our parents had none of these add on expenses.

Sure, you can pick and choose some of these luxuries but the line becomes blurred between luxury and necessity after a while.

[dixiebobh]

Olebd you are right on the money! The "War on the Middle Class" is being waged on the middle class BY the middle class.

Your list of "necessities" that are completely unnecessary to life as our parents knew it is revealing. So we spend money on gadgets and complain that we are being down trodden by Mr. Big.

[condumism]

When I'm depressed, or feeling down, shopping and spending money is a great cure for the blues. American's have a lot to be blue about these days, especially now that Bush and the Rethuglicon Party of Extremists have finally gotten people out of their apolitical stupor by making the American's the butt end of jokes around the world.

[hypnotoad72]

I just got out of debt myself. Grateful to have a job to pay it back with! Do people emulate what others do? Our national debt is big, maybe we want to emulate our government? Yet keep voting the same folks in because they are "the party of fiscal responsibility"...?

People do look to their leaders for guidance and emulate what they see. After all, consumer spending is what keeps the economy going.

I'll be budgeting for now on, but I will say that if wages met the cost of living, more people wouldn't need credit cards. They could buy everything upfront and still save. (it's interesting the ratio between executives and workers went from 40x to over 600x between the late-70s and now. Credit helped people get what they want and keep the economy stimulated. Much like offshoring, living on credit can only go on for so long.)

And if the cost of living was to go down to match wages offered, there would be no "lack of qualified employee" excuse. That's why "developing" countries have it so good. Their wages (that no American could begin to live on) vastly outweigh their cost of living.

So when an employer keeps saying "no" to your requests, interest, and aptitude in something (despite their request of you to show an interest!), it may be time to move on. The employer doesn't give a hoot about structure or promoting hard or good work (there's another catchphrase that's meaningless these days! Meritocracy...), and so should the rest of us, it seems.

[hypnotoad72]

Also, if broadband and cell providers didn't have outrageous termination fees, things would be better too. Especially when you leave citing hypocrisy with the cell provider - why should I give them money because I'm angry over their poor service? Oh well.

Maybe we should all become corporations with lawyers. :D

[hypnotoad72]

Finally, nothing wrong with offshoring, but (proverbially speaking) to help out a pair of legs by slitting your wrists is not a very bright thing to do. Especially when the legs you're helping continually kick you in the butt.

[donita4]

My family must be one of the few who has not ever succumbed to the "live up to the Jones" mentality. We do not possess a credit card, we pay cash for emergencies and all purchases, we own our older vehicles, we own our home, we have cash savings in addition to the riskier (in my opinion) pension of a 401K. We do not have "toys" we do not play with. Yet, we live very well. We eat out once or twice per week and go on vacations. We are in our mid-forties, NOT wealthy. We have not received an inheritance. Do not and have never received any type of welfare to include SSI or a "settlement" of any kind. Nor do we ever plan to live off of the government or expect the government to bail us out. We now earn roughly $38,000 net per year. How then, is my family able to save money on our more or less meager income when so many with the same income or higher are in debt past their eyeballs? Think about it.

[spike995]

With all of the good paying manufacturing jobs leaving America than you will see more and more people in our at the bankrupsy are. Someone needs to stop sending are jobs manly over see like China. my wife and I, like others had a good paying Middle class job. With Ford going belly up it effected companies that made parts for Ford. Unlike the Ford employees that had a buy out we were just let go. so instead of making a good income with my wife we are making 35% of what we use to make. Are bills took almost 85%of are pay .so we are out of the middle class and into the poor class.I will be 50 years old this April amd my wife will be 57 so we start over. the American dream is goin.We will be renting if we are lucky,our homeless.
The unemployee rate does not show the doller for a job rate and how much we have given up to the foren trade.

[razorjay2]

We need to be a little careful here when comparing the low savings rate to the rate during the Depression. Many U.S. workers put a certain percentage of their income into 401k and other savings vehicles rather than a conventional bank account. I don't think these monies are included in the savings equation. And in 1933-34 there were no such savings vehicles.

[fascistusa]

CORPORATIONS are doing GREAT.

Exxon/Mobile's 50 BILLION dollar profit.

The little guy in Fascist America is SCREWED.

It's OVER.

But the CORPORATE GOVERNMENT PROPOGADA we call "News" sure won't tell YOU that.

[olebd]

donita4 - I think a lot of people these days just don't know how to live without credit anymore. I know from experience how easy it is to get sucked into no payments/no interest for 12 month deals or use credit cards for convenience and then not being able to pay them off right away. Some of it can be fear based - I have a newer car so hopefully I lessen my chance of breaking down and being stranded somewhere; I have a newer house with newer appliances so hopefully I won't have any major repairs. I used to have a fear of home projects because I thought I'd screw something up. I've since gotten a lot wiser but have a ways to go. I admire you folks who can pay cash for everything but I don't think that will ever be the norm in these modern times.

[legendary240]

There is nothing wrong with "stuff" if you have your financial house in order. The problem is that no is taught about saving, investing or credit usage in high school. Most parents don't know either, so it just perpetuates like one big old "sheep" waiting to be fleeced by the auto industry, mortgage companies and credit card issuers. Listen to Dave Ramsey, or go to his website if you want to learn a little bit and try the CFO AM if you have it in your area.

[legendary240]

Never buy a car that you can't write a check for. Never buy a new car. Never buy a home that costs more than one and-a-half times your annual income. Do not use credit cards. Never buy life insurance that has a "savings plan" built in. Save at 25% of your income every month. These are some of the things I wish I had learned as a 20 year old.

[bildooreilly]

It's that booming economy.

[bildooreilly]

Better spend it while you can, it's sure not gaining any value. The dollar is getting to be more worthless than the politicians...

[youcancallm1]

Is saving money and putting in a bank earning less than the inflation rate a smart move?

If we had real money it would be the smart thing to do, but having a fraud based money system you will never save enough money to buy a house. The price will go up faster than you can save. Unless you figure out a way to transfer your earnings into something tangible, you are merely working for food. If we had what once was called lawful specie based money the situation would be different. When banks can make money out of thin air and we are forced to work for paper, prices are based upon a lien on future wealth instead of representing past accumulated wealth. There is no shortage of loans that can be made when a bank just needs to say you owe me "X" amount of money and no shortage of fools that will borrow this debt based money. What we have is a fools economy where prices are based on the highest price a fool will mortgage his future instead of the highest price someone that has labored and accumulated will pay for the same thing. Back to the original subject. Why would anyone want to save something that is not useful unless you spend it and loses value until you do?

[billpl-2009]

My wife and I put all (100%) of our paychecks in our savings account. Yup, we use it as a suspense account between our checking account, IRA's and Stock Portfolio's, because that's all it's good for.

Hey CBS, can you say ..."401","IRA","Investment Portfolio"????

[rmsdm4]

Before my wife and I got married we decided to live off one income. Both of us waited until we had good careers before we got married and especially before we had a child. I believe the big problem with debt resulted from the advance of debit cards and credit cards in the mid 90's. During that time the economy was thought to be doing well, internet bubble and corporate falsification we exposed in the late 90's, this gave people a false security to spend and do whatever you want, kinda like the 70's and drugs. Then the time comes to pay, ie 9/11, when we have a hiccup in the economy and everyone is in debt up to their ears. Now that the economy is roaring along, people have gotten themselves so use to debt they can't or don't want to realize that their whole problem resulted in a lack of trust in themselves and a dependence on the government.

[oleander8]

Poppycock! When the economy slows down they tell us to spend, spend, spend -- when it heats up they slap our hands for spending...make up your minds.

[timetrips1]

youcancallm1: There are two sides to every coin. First the calculation does not take into account 401K's and other types of investments, which while more risking then a real savings account still accounts for a lot of personal savings. And as for not saving because it doesn't pay to save, I disagree, I save 10%, as I was taught many years ago (pay yourself before you pay anyone else). Half of my savings I consider available for major purchases (other than a car/house, those I finance). By saving and NEVER running a balance on Credit cards I save a lot in interest and other expenses which I think makes up for the lack of direct interest on savings. Besides if the economy ever does crash, all that "cheap" money I'm putting away will be worth 10 times what I paid for it! So while I hope it never happens, if 1933 comes again I'll at least be able to eat and shelter my family.

[rharrin1]

If you go by % wise the report is correct.

With more and more people earning minimum wage they have nothing left to save.

[xaztec]

Maybe people are spending all their earnings because they have to. Gasoline prices are soaring. Natural gas and home heating oil prices are soaring. Taxes (except on the wealthy) are soaring. Prices of everything else increased because oil prices are so high. Interest rates are going up. Health care is outrageous. What do people have left after all that? Obviously nothing or they'd be saving more. George W Bush was worried about how he will be perceived in history. I think he'll be perceived as a war-mongering moron who lead this country into it's second economic depression.