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Americans Are Spending More,
Saving Less
Some economists say the trend could indicate growing risk in the
economy and financial markets
Consumers optimistic about the economy have been buy more appliances and other big-ticket items, but
saving less. PHOTO: SCOTT OLSON/GETTY IMAGES
By
Sarah Chaney and
Harriet Torry
Updated Oct. 30, 2017 10:27 a.m. ET
10 COMMENTS
Americans are saving less as the economy and stock market heat up and they boost their
spending on big-ticket items like cars and refrigerators.
The U.S. saving rate fell to a 10-year low of 3.1% in September, down from a recent peak of
6.3% in October 2015, the Commerce Department said Monday.
Low unemployment and rising stock prices are likely contributing to household optimism,
making people willing to save less and spend more in anticipation of continued job and wealth
gains.
The saving rate has now sat below 4% for seven straight months. It likewise hovered at low rates
in the late 1990s, when stock prices soared and the jobless rate fell below 5%, and again in the
mid-2000s, when home prices soared and the unemployment rate again dropped.
Savings SlideThe personal-saving rate dropped to a 10-year low in SeptemberTHE WALL STREET JOURNALSource: Commerce
Department
%2000’01’02’03’04’05’06’07’08’09’10’11’12’13’14’15’16’17123456789101112March 2000×3.9%
“It does seem to be consistent with high household net wealth,” said Paul Ashworth of Capital
Economics. Net worth of U.S. households—the value of their assets minus their debts—rose by
$1.7 trillion in the second quarter of 2017 to $96.2 trillion, according to the Federal Reserve.
Though a sign of household optimism and prosperity, the savings drop and wealth gains are also
a signal of risk potentially building in the economy and financial system. The declines in the
savings rate in the 1990s and 2000s were associated with financial bubbles that burst and left
many households with depleted resources that took years to rebuild.
“Consumer incomes are not rising fast enough to sustain solid growth and that is a warning sign
of future trouble,” said Joel L. Naroff, chief economist at Naroff Economic Advisors Inc., in a
note to clients Monday.
Still, periods of low saving can be protracted. The saving rate held below 4% for 40 straight
months between January 2005 and April 2008.
Individuals should “make sure that confidence doesn’t put you too far out of your skis
financially,” said Ted Beck, chief executive of the National Endowment for Financial Education,
a nonprofit.
For now, Americans have been ramping up spending on longer-lasting items.
The Commerce Department report showed that household spending on durable goods rose 3.5%
in September, adjusted for inflation, and at a robust 8.3% inflation-adjusted annual rate for the
third quarter, after 7.6% annualized gain in the previous three-month period. That is far faster
than the economy’s underlying 2% growth.
Sonnie Strolberg, 71, recently bought a 1,200-square-foot home in Twin Falls, Idaho. She and
her husband have invested about $20,000 in renovations, including new kitchen appliances such
as a refrigerator and dishwasher.
“We feel good about the economy, but we know what can happen,” Ms. Strolberg said.
Soaring sentiment wasn’t the only factor driving spending in recent months. Hurricanes Harvey
and Irma, which clobbered parts of Texas and Florida and propelled rebuilding efforts, were a
factor, though one that the Commerce Department said it couldn’t precisely quantify.
Many households had to buy new cars to replace those destroyed in the storms. The Commerce
Department said vehicle purchases advanced at a 14.7% annual rate in the quarter.
“There was lots of damage done to lots of homes, so some of the personal expenditure has to go
to reconstruction as well,” said Satyam Panday, senior U.S. economist at S&P Global Ratings.
While spending marched ahead, real disposable incomes—a measure of how much households
make after taxes and inflation—were unchanged in September. One reason for the lack of
income gains: Hiring dropped, also associated with the storms.
The saving rate might pick up in the months ahead as the wide-ranging impact of the storms
washes out of the income and spending data.
The Federal Reserve’s preferred measure of inflation, the price index for personal-consumption
expenditures, rose 0.4% in September from the prior month, due in part to a jump in gasoline
prices also associated with weather. Excluding the often-volatile categories of food and energy,
inflation remains especially low: So-called core prices were up only 0.1% in September over
August.
Compared with a year earlier, the overall inflation gauge rose 1.6% in September, up from a
1.4% year-over-year increase in August. Core prices remained muted in September from the
prior year, growing 1.3% on an annual basis for the second month running.
The Federal Reserve targets a 2% annual inflation rate. The price index slightly exceeded that
level in February for the first time in nearly five years but has since settled lower.
The Fed will meet this week and release a policy statement Wednesday at 2 p.m. Eastern. The
central bank isn’t expected to move on interest rates but could offer clues about a possible rate
increase at its December meeting.
Write to Sarah Chaney at sarah.chaney@wsj.com and Harriet Torry at harriet.torry@wsj.com
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