NCPA - National Center for Policy Analysis

Are Official Personal-Savings Data Distorted?

May 10, 2001

According to the federal government's calculations, Americans have been saving less and less in recent years and are now, in fact, spending more than they make.

But economist Martin Barnes, of the publication Bank Credit Analyst, says that consumers have not been on a buying binge. He argues that some items households regard as income are not included in the government's income tally -- while others that households ignore are included. The upshot is a false picture of savings behavior.

  • For example, benefits from private pension plans, which have been growing at a 7 percent to 8 percent annual rate for years, are not counted by the government as income, although corporate contributions to such plans are counted.
  • And because such corporate contributions weren't needed as fund assets grew during the equity boom, the official measure of personal income was held down -- making it appear that people were spending out of their savings.
  • Similarly, the government doesn't count realized capital gains as personal income because such gains are not related to income generated by current production.
  • Barnes calculates that including pension benefits and capital gains as income would not only add 10 percentage points to last year's savings rate, but would also show little decline in savings in recent years.

What's more, realized capital gains on stocks will still be significant, since only people who have sold stocks bought in the past two years will have losses. And people continue to rack up capital gains from sales of other assets such as homes.

Source: Gene Koretz, "Economic Trends: A Phony Negative Savings Rate," Business Week, May 14, 2001.


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