Hyperbole and the US savings rate

By Felix Salmon
April 1, 2009

This press release from Alix Partners just arrived in my inbox; it’s plugging a survey that the company has kindasorta released. The survey “is proprietary“, they say, but that doesn’t stop them from scaremongering up a storm:

While American industry is struggling to get through what could become the worst recession since the Great Depression, Americans say that even after the recession ends, their spending will return to just 86% of pre-recession levels, which equates to an approximate 10% drop, or more than $1 trillion annually, in GDP. They also say this new, lower level of spending is structural and could last for nearly a decade after the recession ends. The findings are based on an in-depth economic survey of more than 5,000 Americans released today by AlixPartners LLP, the global business-advisory firm.

If you read this very carefully, it’s not actually saying that there’s a snowball’s chance in hell of consumer spending or US GDP dropping by these enormous amounts: the key words here are “Americans say”.

This survey might actually be interesting if today’s savings expectations are compared to savings expectations in the past. If the survey had been run annually, say, then we might have some baseline against which to calibrate the finding that Americans say that they’re going to save 14% of their income. But we don’t, so it’s truly meaningless, graphs like this one notwithstanding:

savings.tiff

You might as well run a chart of how much weight Americans have lost in the past, and then add a column showing how much weight they hope to lose in the next year.

Astonishingly, Alix Partners seems to think that this information is useful, and they’re plugging it as an example of the value they can add; their PR person, Brian Shiver, even says that the results of the survey will “require companies across almost every sector to rethink how they operate their businesses”. Er no, they won’t. More likely, they will require companies across almost every sector to rethink the utility of hiring large consulting firms.

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Comments
2 comments so far

Felix,
Why the misconception that Americans don’t save? There are over $4 TRILLION in 401ks and other saving instruments like 403b, Roth IRA etc in the country as well as value in their home. No one puts money in a savings account at a bank anymore because interest rates have been at 1% for a decade and not worth it. Americans save a lot; it is just not available to politicians or bankers.

Posted by John Moniz | Report as abusive

The analogy of losing weight is apt but there are aspirational weight loss goals and those made necessary if one is to survive. Previously Americans might have thought of weight loss as a desirable but not essential thing. However, after suffering a financial ‘heart attack’
many now view it as matter of survival.

With trillions in wealth having been wiped out by plunging asset values Americans now have no choice but to increase their savings. Short of another asset bubble most Americans are going to feel a lot poorer for a lot longer than in any previous period since the Great Depression.

Posted by Scott | Report as abusive
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