The personal saving rate is now positive!

One of the mostly overlooked developments from last Friday's GDP report was the effect that massive data revisions had on the personal saving rate - it is now positive!

Not by much, but those nasty negative numbers going back over two years have been wiped off the books for good after new income was found.

Recall that this much misunderstood measure is simply after-tax income less consumption expenditures and, according to the BEA, a zero or negative personal saving rate does not imply that individuals are not saving for retirement.

A zero or negative personal saving rate simply means that instead of being funded by current income, some portion of spending is "financed by borrowing (including borrowing financed through credit cards or home equity loans), by selling investments or other assets, or by using savings from previous periods".

So, just how much has the savings rate improved?

The personal saving rate -- saving as a percentage of disposable personal income -- was 0.6 percent in the second quarter, compared with 1.1 percent in the first.
...
The personal saving rate (personal saving as a percentage of DPI) was revised up from 2.0 percent to 2.1 percent for 2004, was revised up from negative 0.4 percent to positive 0.5 percent for 2005, and was revised up from negative 1.0 percent to positive 0.4 percent for 2006.

Who says we're not a nation of savers?

That's a hefty average of a full percent each year for each of the last three years.

What more could you ask?

Maybe it's time to take a break and live a little - go on America, go out and buy something nice for yourself - you deserve it after the last three years.

Naturally, there are still those individuals who want to put assets into the savings rate calculation to make it a much, much bigger positive number - after all, rising asset prices are the foundation for nearly all Western economies.

There are a few dissenters, former Dallas Fed President Bob McTeer being the most recent, but as evidenced by the comments section at the WSJ economics blog on this topic, this is still the prevailing view.

This is good news. However, the savings rate statistic is not as meaningful as it should be. For example, it does not include assets in retirement plans, which are $16.4 trillion. See:
http://fundmasteryblog.wordpress.com/2007/07/25/164-trillion-in-retirement-accounts/
Comment by Kurt Brouwer - July 27, 2007 at 3:48 pm
...
Does the “savings rate” also reflect 401(k) and IRA, i.e. retirement, deposits?
Comment by deb - July 27, 2007 at 4:33 pm

The value of the “rate of savings” is dubious since it does not include investments. In our house we haven’t had a savings account in decades, instead investing hundreds of thousands into mutual funds. But according to the official definition, we haven’t saved a dime. Jesus saves but Moses invests.
Comment by Richard - July 29, 2007 at 6:14 pm

Jesus, hundreds of thousands! I mean, Moses.