Guzzo the Contrarian

According to the Bureau of Economic Analysis, personal saving as a percentage of disposable personal income was 6.9% in May. It was 5.6% in April and 4.3% in March. The 6.9% rate was the largest since 7.6% in December 1993. The personal saving level of $768.8 billion, which followed an April level of $608.5 billion, was the largest since records began in January 1959.

That’s all great news in my opinion, and I hope it continues to rise. As you can see, the savings rate has been trending up since the start of 2008. It’s unfortunate that it took a recession to wake people up to the importance of personal saving and creating an emergency fund in preparation for such unforeseen circumstances. In any event, an increase in the saving rate is good for America.

But, some investors don’t consider an increase in personal savings a good thing, since that money could be spent buying goods and services used to improve the bottom-lines of businesses in which investors hold stock. These investors are worried that an inordinate saving rate by consumers will slow an economic rebound. It seems as though they want consumers to continue with their freewheeling spending that, in my opinion, helped lead us into this recession.

Why would anyone want to perpetuate this irresponsible behavior? It won’t be good for anyone in the long term and even in the short run. I think these investors are being short-sighted.

The monies consumers are saving are growing the deposits for many banking institutions, easing bankers worries and perhaps stimulating more lending. The more financially-stable depositors seem, the more willing banks are to lend to them, thus stimulating the economy.

As recessionary markets are psychologically-driven, anything that eases worry should be viewed positively. As most people who have one can attest, a nest-egg or emergency fund greatly reduces worry and anxiety of the unknown. The less anxious and more comfortable consumers are with their financial well-being, the more likely they are to start spending.

Also, it’s not like consumers have stopped spending altogether. Consumers are actually spending more. According to this same BEA report, the personal spending rate increased 0.3%, after no change in April and a 0.3% drop in March. That looks like improvement to me.

So, if you ask me, there’s no call for concern that an increase in the saving rate will cause a significant drop in spending. If anything, it should stimulate spending. But, that’s just my opinion. Take it for what it’s worth.