Americans' Spending Frenzy Unabated

ByABC News
February 27, 2001, 3:29 PM

March 1 -- The stock market's in the dumps and consumer confidence has plummeted. Maybe, but you'd never guess anything was wrong from the way Americans have been spending lately.

It's true that the Nasdaq and S&P 500 have tanked so far this year, andthat consumer confidence fell for the fifth straight month in February. Butdata from the Department of Commerce shows the personal savings rate was still in negative territory as recently as December. The latest figuresavailable put the savings rate at -0.8 percent.

That's not as scary as it sounds,because the savings rate doesn't take into account other forms of wealthand past savings more on that later. But the continued pace of spendingis significant, because it has persisted in the midst of a sharp economicdownturn. And if all that spending were to taper off, it could have bigimplications for the economy.

Much of the spectacular economic growth overthe last few years has been fueled by consumer spending, which accounts fortwo-thirds of all U.S. economic activity. In theory, if people were tosuddenly get worried about job security and sharply curtail their spending,the resulting drop in consumption might have the effect of worseningeconomic woes.

Depression-era Savings Numbers

By way of background, the savings rate for all of 2000 was -0.1 percent. Toput that number in perspective, the last time the annual number wasnegative was in 1933, in the midst of the Depression. (Conversely, annualsavings reached its highest rate, 20.6 percent, in 1945, when the war andrationing served to slow down consumption).

In 2000, personal savings was negative not because the economy was sobad, but because it was so good. Fueled by tremendousoptimism, Americans continued to spend more than they took in even throughthe end of the year, after ominous announcements of corporate layoffs beganseeping out and Wall Street strategists started tossing around the r-wordin public (usually to deny the possibility, but even that counts forsomething).