Another reason to question the numbers…..
by Tom on August 31, 2009
in Market Musings
Yves Smith over at Naked Capitalism raises another reason to question the numbers that you hear in the main stream media. Let me attempt to summarize and then go read the whole article if you want more information:
- The numbers according to the way that “they” show them is that the savings rate is up.
- But so are mortgage delinquencies, foreclosures, credit card defaults etc. So, there are a lot of people who don’t have enough to meet their obligations, let alone save.
- If the top 1% in income are saving an additional 20% of their income, it skews the numbers and makes it such that it appears that the savings rate for everyone has gone up.
Granted, there are no solid numbers that break the savings rate down by income percentile, but this does raise some questions about the statistics on savings rates.
Tom Vanderwell
Guest Post: “The Savings Rate Has Recovered…if You Ignore the Bottom 99%” « naked capitalism
It has become fashionable among equities managers of the bullish persuasion to argue that a strong recovery in GDP will occur in 2010 because the “structural adjustment period” of moving back to a more normal savings rate has been completed. We’ve gone from a savings rate of barely 1% in 2008 up to 4.2% in July (ok, so the argument sounded better when the number was 6.2% in May, but still…).The story goes something like, “consumers took a little time to recognize that their home equity had disappeared, but now they’ve adjusted their savings rates toward the desired level to reflect the fact that they need to save a larger proportion of income for retirement…so this effect will no longer be a drag on growth in coming quarters.”
This is the kind of conventional wisdom which could only emerge among folks in the 99th income percentile who spend their time primarily with other folks in the 99th income percentile. You don’t have to look at the data (mortgage delinquencies, foreclosures, credit card defaults, bankruptcies) all that hard to see a very different picture. In fact, it is almost certainly true that the savings rate for 99% of the US population is negative. These people (a/k/a “all of us”) are drowning. And to the extent that our savings rate is less negative than it was one or two years ago, that simply reflects the reality of reduced home equity and unsecured credit lines rather than any conscious effort to reach a “desired level” of savings.
