Doubt Thrown On Savings Data

February 19, 2001

A study from the Federal Reserve Bank of New York throws cold water on the Commerce Department's figures on Americans' savings rates. The New York Fed claims Commerce's figures are "very distorted."

  • To begin with, the personal income figures exclude gains or losses from the sale of items such as real estate or financial assets.
  • That means an undercount of both personal income and personal savings.
  • Moreover, capital-gains taxes are subtracted from personal income -- even though the capital gains themselves are not included in the income figures.
  • That makes savings and income look weaker than they actually are.

Economists Richard Peach and Charles Steindel's Fed study suggests either removing capital-gains taxes altogether from the statistics, or including realized capital gains in the personal income figures.

Were the first done, the personal savings rate would rise by 1.5 percentage points from its reported level. Taking the second course, the savings rate would be 7.25 percentage points higher than initially reported in 1999.

Their interpretation paints a more optimistic picture than prevailed previously.

Source: Charles Steindel and Richard Peach, "A Nation of Spendthrifts? An Analysis of Trends in Personal and Gross Saving," Economics and Finance, September 2000, Federal Reserve Bank of New York; Laura Cohn, "Economic Trends: Fixing the Dents in Savings Data," Business Week, February 26, 2001.

 

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