You'd think that, after investors took a collective $5 trillion blow to their stock portfolios, after pink slips piled up, after a season of diddly corporate earnings, Americans feeling cautious about their future might start to build up their savings.
But there's little evidence of that so far - and, oddly enough, economists are heaving a huge sigh of relief. If Americans chose this moment to stop spending and start saving, the current economic slowdown would quickly become a recession.
"We definitely don't want people to give up their shopping habits right now," says Edward Yardeni, chief investment strategist in New York of Deutsche Banc Alex. Brown, an investment firm.
Ordinarily, economists aren't so antisavings. Since 1995, they've noisily lamented a decline in the savings rate, which last year was a negative number (meaning Americans spent more than they earned). For most of the years after World War II, personal savings hovered between 7 and 11 percent of after-tax income.
Americans have had reasons for being spendthrifts. Why save when the stock market is rapidly building 401(k) plans or Individual Retirement Accounts? Why bother when unemployment is low, with jobs so bountiful?
Savings as bogeyman
All that has changed now, and economists fret about what will happen if people suddenly revert to their historical savings habits.
"We need strong consumer demand to occupy all the factories we have built," says David Wyss, chief economist of Standard & Poor's in New York. Quoting St. Augustine, he adds: "Lord give me virtue, but not yet."
Economists do still regard savings as a virtue, in the long run. Savings are eventually put into home mortgages, new plants and equipment, office buildings, and other investments that meet the nation's needs and can add to living standards. Substantial savings help keep interest rates low.
There is evidence, though, that Americans are becoming more concerned about their finances.
Mutual-fund investors have been taking money out of, or not putting as much into, equity funds - funds invested primarily in stocks. Instead, they appear to be putting some of those assets into safer money-market funds.
And those playing it really safe are leaving securities markets entirely, transferring money into savings or other bank and thrift accounts covered by federal deposit insurance. Last year, with the start of the bear market, bank deposits grew 8 percent. Robert Strand, senior economist at the American Bankers Association, hears "anecdotal evidence" that they may be growing even faster this year, although numbers to confirm that aren't available yet.
"As people turn more cautious and conservative, the savings rate will turn up," predicts Wayne Ayers, an economist at FleetBoston Financial in Boston.
That happened with the start of the Gulf War in the summer of 1991. Consumer confidence plunged rapidly, the fastest ever. Americans slowed their spending, started saving, and the economy slipped into recession.
In recent months, notes Mr. Wyss, consumer confidence has had its second-quickest dip.
"We have never had this big a decline in consumer confidence without a recession," he adds.
That's why economists and investors were so relieved Tuesday when consumer confidence bounced back in March, after a five-month slump.
In the habit of buying
Other new numbers also offer hope that consumers haven't dramatically started saving. Sales of new homes remain strong, though declining 2.4 percent in February. Also, orders for costly US manufactured goods - from refrigerators to airplanes and autos - fell only modestly in February after a steep decline in January.
"Consumers are creatures of habit," says James Glassman, chief economist of JPMorgan Research in New York. "It takes a little while to change people's minds on the stock market."
Most investors don't calculate their financial net worth on paper
every day. So they may adjust their spending in reaction to a stock-market bust only after a year or two, Mr. Glassman suggests. He expects "downside surprises on consumer spending."
That echoes Federal Reserve Chairman Alan Greenspan. He recently told Congress: "It is difficult for economic policy to deal with the abruptness of a break in confidence .... the change in attitudes has often been sudden."
Today, the Commerce Department publishes numbers on real consumer spending for February. Economists are forecasting 0.3 percent growth, down from 0.7 percent in January. Also, statistics on personal income will be released. The difference will show what is happening to savings.
Household net worth, for the first time in at least 55 years, dropped last year - by 2 percent - because of falling stock prices. But households still have $41.4 trillion in net worth, high by historical standards and 12 percent above 1998. So pressure on consumers to save may not be huge.
Wyss hopes savings "go back to positive - but not too positive."
(c) Copyright 2001. The Christian Science Monitor