The stock market was down today amid worries that Americans are saving too much money (see the Associated Press story below).
It wasn’t more than a year ago the opposite was true – Americans weren’t saving enough money.
While the stock market may not be happy, I think this was long overdue. I’m wondering if this is a fundamental shift, where Americans will generally do a better job saving money in the coming months or years. I’ve heard from many people resolving to save money and eliminate debt, and the numbers seem to say Americans are serious. What do you think? Will Americans keep this up?
By MADLEN READ
^AP Business Writer
NEW YORK (AP) — Consumers are saving more than they’re spending, and that has investors worried.
Stocks capped a choppy week of trading with a mixed finish Friday after the Commerce Department reported that personal spending, incomes and savings all rose in May. What troubled investors was that the savings rate soared to 6.9 percent, a 15-year high, while spending rose by a modest 0.3 percent.
The trend suggests consumers are being very careful with their money. That’s good for the individual, but not great in the short term for the overall economy, which relies heavily on consumer spending for growth.
Phil Orlando, chief equity market strategist at Federated Investors, said he expects the savings rate to eventually hit 10 percent before it eases. The savings rate had been 5.6 percent in April, and annual savings rates were below 1 percent from 2005 through 2007.
“If people ramp up savings that aggressively, that is going to result in less GDP recovery than ordinarily would be the case,” Orlando said.
Gross domestic product dropped at an annual rate of 5.5 percent in the first quarter, the government reported earlier this week. As the first half of 2009 ends, investors are growing more anxious about whether the economy can bounce back later this year.