Every five years the Bureau of Economic Analysis (BEA) publishes revised economic data that is derived through improved survey methodologies. Sometimes the new and improved methodologies can produce dramatic revisions to economic data going back many years. Such was the case with the BEA’s latest revisions, which were released late last month. Perhaps most surprising, the new data suggests that US consumers have been saving a much greater proportion of their disposable income than had been previously estimated. Why is this important? Because consumer spending represents about 67%-68% of the US economy, and so higher savings rates can effectively be interpreted as deferred consumer spending (and therefore deferred economic growth). In layman’s terms, it means that consumers may have far more dry powder for a rainy day than previously thought. Given weak wage growth in recent decades, as well as the average consumer’s ill-preparedness for retirement, the new data is very good news.
So does the new savings rate data do anything to alleviate our concerns about the financial well-being of the US consumer? At the margin, yes. It’s great that small-business owners were able to save more than we previously thought. In times of economic uncertainty, these proprietors could potentially use their savings to keep their businesses afloat and their employees employed. Under a scenario such as that, everybody wins. However, the new data still mask a major impediment to better economic growth: economic inequality. As such, it is probably far too early to conclude that the BEA’s new savings numbers will have a meaningful impact of US economic vitality.