It appears I was when I gave the title "The Savings Rate Increases -- And That Ain't Good News" to my post on the August personal income and outlays report. Both Tim Duy and James Hamilton -- two good barometers of whether you are making any sense at all -- interpreted me to be suggesting that a tick up in the savings rate was (or might soon be) dragging the economy down.
My bad. Almost all of us clacking our keyboards out here in blogland have, at one time or another, expressed the opinion that saving rates in the U.S. must surely increase at some point, many of us at the same time scratching our heads about how they got so low in the first place. What I had in mind was a return to a positive trend in personal saving, a reduction in government dissaving, and the like. A rise in the saving rate because consumption spending happened to fall by more than income for a month was not really the news I was looking for.
Month-to-month numbers are treacherous, and I'm not really sure what accounts for the August pattern in consumption and income. But I was interpreting the blip in the saving rate -- from a negative number to a closer-to-zero negative number -- as a bit of precautionary behavior on the part of consumers, driven by the energy-related uncertainty that has developed in late summer. I wasn't really thinking in terms of slow consumption spending driving the economy into a protracted slowdown.
For the record, I agree with what Tim and Jim have to say on this issue: A gradual easing of consumption growth and increase in saving need not substantially impact the growth of the economy over the next year or so. I subscribe to the view that one of the reasons interest rates have remained so low in the U.S. -- prompting, in my opinion, the oddly maligned boom in the housing market -- is that business fixed investment has been unusually soft over the course of the current expansion. To paraphrase Professor Duy, if investment spending springs back, consumers are free to retrench, and all will be forgiven.
Yesterday, Professor Hamilton noted once again that the key is the speed with which resources can be allocated from slower-growing sectors to faster-growing sectors. It's a hard test in the face of big economic shocks -- that's why rapid and persistent increases in energy prices are so problematic. But the combination of some slumping in consumer spending with signs of life from business is enough to make me almost cautiously optimistic.