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US Savings Rate Negative for Seventh Straight Month

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The Commerce Department determined that Americans spent more than they earned for the seventh straight month in November, 2005, increasing the chance that the US will have a negative savings rate for 2005 as a whole, Kevin Lansing, an economist with the Federal Reserve Bank in San Francisco, recently told the San Francisco Gate newspaper. If that happens, it would be the first time the US had a negative savings rate since the Great Depression. Although strong consumer spending has boosted the US economy in recent years, many economists say housing prices will, at best, flatten out, breaking the cycle of refinancing that has allowed consumers to borrow and spend.

Savings Rate Hits Zero in June

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The savings rate for June 2005 hit zero, for only the second time since 1959, when the Commerce Department began tracking savings by consumers. “[Rising home values] are making people feel they don’t need to save,” Lakshman Achuthan, managing director of the Economic Cycle Research Institute, told CNN Money. While high levels of consumer spending are helping drive the economy now, if real estate prices start to decline, it will be bad for the economy, as consumers run out of home equity they can tap.