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11/10/2010

Will consumers save or spend?

After a steady decline in the savings rate since the 1980s, consumers started to ramp up their savings during the latest recession. The personal savings rate increased to more than 8 percent of disposable income during the latest recession, following a savings rate as low as 1 percent during the 2002–07 expansion. The savings rate remains high, at 5.3 percent in September (see chart 1), and many economists wonder if consumers will continue to save more of their income and spend less, or return to lower savings and more spending. The amount of consumer spending can have a large impact on economic growth, as this spending accounts for about 70 percent of gross domestic product.


To get some insight into consumers' current and future savings, our friend, Timothy Graeff at Middle Tennessee State University (MTSU) asked the question in the school's consumer survey.

Five times a year, Dr. Graeff and his team at the Office of Consumer Research conduct telephone interviews of more than 300 residents in middle Tennessee. Their survey consists of 11 questions measuring their perceptions of the current economy, the future economy, and jobs in both the United States and the middle Tennessee. Questions are also asked about their current state and future expectations of personal finances and plans for large purchases such as a house, car, and large household items. An overall confidence index is based on all 11 questions. In addition, they ask special questions, which in the past have included consumer's expectations of future spending, taxes, and stock market performance.

The September survey, asking about consumer savings, showed that those consumers who answered that they are currently saving more of their income than they did before the recession expect to continue or increase their savings rate as the economy strengthens (see chart 2). Of those who answered that they are currently saving less than before the recession, the vast majority are planning on saving more when the economy strengthens. Meanwhile, the consumers who reported that they maintained their savings rate through the recession answered that they plan to continue the same level of savings. All in all, very few of the consumers polled expect to decrease their savings rate as the economy strengthens.

MTSU also houses the Business and Economic Research Center under the direction of Dr. David Penn. Here you can find information relating to Tennessee's economy, including the housing market, labor market, global commerce, and more.

By Sandra Kollen, a senior analyst in the Atlanta Fed's research department

 

November 10, 2010 in Consumer Savings | Permalink

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