Savings Habits in the US Take a Jump for the Better
FOR years, Americans have been berated over their poor savings habits. The United States was charged with being a nation of spendthrifts. Only last month, budget director Richard Darman coined a phrase, ``now-now-ism,'' to describe a tendency to sacrifice the future to instant gratification. This all may be dated. Revised data on the nation's output of goods and services and monthly data on personal income and spending show a much improved picture of US savings.
Personal savings, as measured by the Department of Commerce, had dropped as low as a $55 billion annual rate in the winter of 1987. By last June, Americans were putting aside funds at a $229 billion rate.
Nor has the rise in personal savings been offset by declines elsewhere in the economy. Total gross savings, including the savings of corporations and governments as well as individuals, have risen from a low of about $500 billion in 1985 to about $700 billion currently.
``I don't see a shortfall in terms of savings,'' says Lincoln Anderson, an economist with Bear, Stearns & Co., a brokerage house.
Over the last two years, he notes, 25 percent of the rise in disposable personal income has been put into savings. The savings rate rose to 5.9 percent in June, which is close to the 6 to 7 percent that it ran in the 1960s and much of the '70s.
As a group, the states are still running budget surpluses (savings). Mr. Anderson figures the federal deficit this fiscal year should end up not much different from last year, even with the $20 billion added to it as a result of the savings-and-loan rescue plan. But Mr. Darman this week said the fiscal 1989 deficit could end up near $170 billion.
Whatever number proves closest, Anderson holds the deficit is no longer ``a big problem'' from an economic standpoint. It is still declining as a proportion of the nation's total output.
Anderson also notes that household balance sheets have been improved by substantial capital gains in both bonds and equities. At year-end 1988, total financial assets exceeded $130,000 per household, with total financial liabilities below $40,000. So far this year, corporate stocks have appreciated by about 25 percent. That adds a $500 billion gain to direct holdings of stocks by households, or about $5,500 per household. There are similar gains on the $2.9 trillion in pension fund and life insurance reserves.
``The balance sheet of American households has never looked better,'' the former White House economist maintains.
Mortgages as a percent of house values have risen to 48 percent, exceeding the previous high in 1965. The ratio of deposits (checking, saving, and money-market fund) to total financial liabilities, is down in the last two years. But it is still 93 percent. And many households have stocks, bonds, and home-equity assets intact on the black side of their balance sheets, aside from deposits.
So the data do not support assertions that households on average are overextended on debt, though this may be true of some individuals. Anderson says: ``The household sector is enormously liquid.''
He views the rise in saving as a measure of confidence of the public in the economic policy and performance of President Bush and Federal Reserve Board Chairman Alan Greenspan.
Economists welcome higher savings because the money can be used for investment in modern factories, equipment, or other business ventures that offer the potential for good future returns. It is such investment that improves productivity, US competitiveness in international markets, and the likelihood of higher living standards. Many economists lamented the decline in net investment as a percentage of total national output in the 1980s.
However, Anderson notes that the situation may not be as bad as it appears. That's because prices of capital goods rose only about half as fast as prices generally. Thus real capital goods investment has held up better than its share of gross national product.
Another economist, Paul Craig Roberts of the Center for Strategic & International Studies in Washington, notes a shift in the composition of investment from longer-lived assets, such as buildings, to shorter-lived assets, such as equipment. This shift results in more depreciation, which is subtracted from gross investment to arrive at net investment. Because of this statistical factor, net investment shrank, though all the new machinery helped boost manufacturing productivity sharply in recent years.
Mr. Roberts, who was a high Treasury official during the first Reagan administration, gives a kudos to the former president's policy of restoring property rights and free markets for the strength of US business investment and productivity growth.
All this doesn't mean the US economy is out of the woods.
Savings remain higher in most foreign nations. Congress and the administration still face a struggle to trim the budget further. If the economy sinks into recession, it will damage federal revenues and worsen the deficit again.
Nonetheless, the numbers imply that the United States is no longer engaged in a massive consumption bash.