US Consumers Are Changing Their Behavior: From Big Spender to Big Saver

The giant insurance and financial services company, Allianz, released a survey today which shows that consumers are savings more of their money, raising the savings rate. The report predicts the savings rate could go as high at 6-6.5%.

The main results of the survey are:

• Sharp decline in US households' net worth could trigger a lasting increase in the saving rate up to 6%-6.5%, potentially significantly expanding the need for guaranteed and safe savings solutions.
• An estimated $700 billion per year could be saved in US in the next 10 years.
• Saving patterns are set to change. US consumers are particularly shy of risky assets.

Despite this improvement, the report notes it is well below the average of almost $900 billion that was invested annually in the five boom years of 2003 to 2007. Overall, accumulation of financial assets as a ratio of disposable income is – on average – 2 percentage points lower than in the period 1997-2008.

The report obviously calculated savings rates differently than what I'm used to seeing. As the chart below shows, the Bureau of Economic Analysis calculated personal savings rates well below 7% during this same period.

Either way though, there is no doubt that the personal savings rate is going up and will probably remain that way for some time. Consumers are stashing cash and cutting back on spending - thus we have a slow, to non-existent recovery. For the time-being consumers also seem to be resisting the allure of putting their money back into risky investments. Investing memory is short though and I have no doubt that can and will change quickly. It seems difficult to believe that the scars of this recession will last anywhere near as long as our grandparents memories of the Great Depression.

But if savings is broadened to include the government and the private sector, than the savings rate is negative for the first-time since the Great Depression.

As Bloomberg writes:

"Government deficits have caused the U.S. savings rate to turn negative for the first time since the Great Depression, and the gap is widening even as households and companies put away more money than ever before."

So, what you have are consumers saving more while corporations and the government are spending. In the future, all of the consumer savings if going to be needed to pay for the deficit.