April 20 (Bloomberg) -- Americans are likely to keep rebuilding their savings for years to come as the specter of job losses and the meltdown in stocks triggered by the recession lingers, economists say.
Households are putting money away at a pace more than double that leading up to the economic slump. The saving rate has averaged 4.8 percent since June 2009, when the 18-month contraction ended, compared with 2.2 percent in the three years leading up the downturn.
“Households are going to be mired in this deleveraging environment for a few more years,” Ellen Zentner, a senior U.S. economist at Nomura Securities International Inc. in New York, said in a telephone interview. “That’s not atypical following a financial crisis.”
The need to boost cash reserves and pay down debt may eclipse the urge to be the first on the block to drive the newest model car, stemming a recent decrease in the saving rate. Almost three years into the recovery, the economy has yet to regain even half the 8.8 million jobs lost or the $16.4 trillion in household net worth washed away as a result of the recession, indicating consumers will want to keep a bigger cash cushion.
“A savings rate in the neighborhood of 5 percent is one that would allow consumers to prepare for long-term obligations and yet will support the economy in the short-term,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia.
Pent-up demand for automobiles helped propel a 0.8 percent gain in consumer spending in February, the biggest in seven months, according to Commerce Department data. The pickup carried over into March as figures this week showed retail sales also advanced 0.8 percent, reflecting stepped-up purchases of furniture, clothes and electronics.
Stronger earnings, reflecting in part the recent pickup in sales, are boosting share prices. The Standard & Poor’s 500 Index climbed 0.1 percent to 1,378.53 at the 4 p.m. close in New York. General Electric Co., Microsoft Corp. and Schlumberger Ltd. reported profits that topped analysts’ estimates.
Shares also rose on better economic news elsewhere. A report today showed German business confidence unexpectedly increased in April for a sixth month.
The increase in U.S. consumer spending pushed the saving rate down to 3.7 percent in February, the lowest in more than two years and matching the level in August 2009 as the weakest of the current expansion, Commerce Department data show.
Such profligacy will probably not go unchecked, according to analysts like LeBas. The ups and downs of the job market underscore the need to keep saving, he said.
“If the labor markets are volatile, you have a higher chance of losing your job and, therefore, as an individual you need to save more,” he said.
Last month was a case in point. Employers added 120,000 workers to payrolls, less than the lowest estimate of economists surveyed by Bloomberg News and the poorest showing in five months, Labor Department figures showed. The jobless rate dropped to a three-year low of 8.2 percent as some of the unemployed stopped looking for work.
Andrew Hedberg, a Minneapolis resident who’s been without a job since losing a seasonal position at Macy’s Inc. about a year ago, is among those knowing first-hand the importance of having money stowed away.
“I’ve had to dip into my savings,” said Hedberg, 38. “I’m certainly glad that I had savings available to me because not everyone does. It bolsters my belief that savings is the best investment, like an insurance policy that I can make for myself.”
By keeping borrowing costs low to spur spending and growth, Federal Reserve policy makers have had a hand in the recent decrease in the rate at which nest eggs are rebuilt, said LeBas. Near-zero interest rates on savings accounts reduce the opportunity cost of putting that cash to work, he said.
“The Federal Reserve, with its low-rate policy, has been subsidizing consumers’ ability to spend by reducing the desire to save,” said LeBas. The central bank “has actually been more effective than most people recognize in that they’ve really convinced consumers to spend rather than save, thereby supporting short-term economic activity,” he said.
Fed policy makers have kept their benchmark rate near zero since December 2008. Central bank officials have said they plan to keep interest rates low through late 2014.
The recent decline in the saving rate, the share of after-tax income that Americans are able to sock away, including individual retirement accounts and 401(k)s, may also be a statistical mirage that will eventually be revised away, according to economists like Stuart Hoffman. That indicates spending may not decelerate.
“They’ll probably revise the savings rate back up,” Hoffman, chief economist at PNC Financial Services Group Inc. in Pittsburg, said in an interview. “I don’t believe you’re going to see consumer spending die out.”
Revisions to gross domestic product figures on Feb. 29 showed wages and salaries from July through September rose $107.2 billion, up from the $24.8 billion gain initially reported. Updates issued last month showed they climbed another $89.1 billion in the fourth quarter, up from an initial estimate of $66.1 billion.
Additionally, while initial contributions to IRAs and 401(k)s are included in savings, the capital gains from those funds are not. That means the rate will probably be held down over the next decade as the Baby Boom generation retires and starts spending those proceeds.
Other economists, such as Ken Mayland, believe the current pace of household spending is unsustainable.
“Consumers have been working down their personal savings rate to sustain a spending style,” Mayland, president of ClearView Economics LLC in Pepper Pike, Ohio, said in a telephone interview. “That can only go on so long.”
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