Saving And Borrowing Trends Reinforce Shift In Behavior

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The Federal Reserve released its third quarter Flow of Funds report today. There's so much great data in this report that it's hard to know what to highlight, but the debt and savings numbers got my attention. U.S. households continue to trim their debt. Although personal savings grew significantly in the second quarter, the third quarter saw a drop. But the trend becomes clearer when you consider net savings.

Here's a chart showing household debt growth:

FF Debt Growth 2009-Q3.PNG

As you can see, borrowing took a nosedive since the recession began at the end of 2007. Since the second half of 2008, Americans actually began paying down their debt, which is a very good thing.

Americans have also gotten more conservative regarding personal saving, as the next chart shows:

FF Personal Saving 2009-Q3.PNG

Savings skyrocketed in the second quarter of 2008, and remained relatively high since then. In the third quarter of 2009, however, savings dipped. But from the chart, it's pretty clear that savings generally declines in the third quarter. So I'm not yet convinced that a new trend is forming.

This data indicates debt is declining, while saving continues to be pretty high. But what I thought might be particularly interesting to consider would be the net personal savings trend -- personal saving less new household borrowing. So I calculated that since 2005. Here's what I got:

FF Net Saving 2009-Q3.PNG

This statistic is by no means a perfect measure of net saving, but it's still worth considering. I find this trend the most telling. It shows a quite clear shift from very negative net saving to very positive net saving. Americans finally appear to be taking fiscal responsibility. Let's hope this trend isn't just a phase.

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Daniel Indiviglio was an associate editor at The Atlantic from 2009 through 2011. He is now the Washington, D.C.-based columnist for Reuters Breakingviews. He is also a 2011 Robert Novak Journalism Fellow through the Phillips Foundation. More

Indiviglio has also written for Forbes. Prior to becoming a journalist, he spent several years working as an investment banker and a consultant.
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