Economists Are Uneasy About 2 Lagging Key Indicators

Jul 27, 2018
Originally published on July 27, 2018 11:08 am
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NOEL KING, HOST:

The U.S. economy seems to be doing well. Unemployment is low. We're adding jobs. But there are other key indicators that might better tell us how the economy is doing. NPR's Planet Money has a daily economics podcast called The Indicator. It digs into numbers in the news. And the hosts, Stacey Vanek Smith and Cardiff Garcia, have two indicators that might make economists nervous.

STACEY VANEK SMITH, BYLINE: Indicator No. 1 that does, yes, show a slightly worrying trend, and that is very understandable by normal humans. Now, this is the personal savings rate. So, right now, Americans are only saving about 3.2 percent of their incomes after taxes are taken out.

CARDIFF GARCIA, BYLINE: And that is only about half as much as Americans were saving just three years ago, before the saving rate fell sharply. And then, for the last couple of years, it's averaged about where it is now - 3.2 percent.

VANEK SMITH: So the low savings rate, in some ways, makes a lot of sense, right? I mean, unemployment is low. And people do tend to save less money when they're feeling good, when they're confident about where the economy's going, when they are confident they're going to be able to keep their job or maybe even get a better job really soon with a higher salary.

GARCIA: Yeah. Plus, the population is aging, and a lot more people are retiring now. And some of the money that retirees are spending comes from their earlier savings, things like pensions and 401(k)s, rather than from new income. So that might be skewing the personal saving rate a bit lower, but for a totally normal and not-actually-that-worrying reason.

VANEK SMITH: But still, we are keeping our eye on the savings rate because in historical terms, a personal savings rate of 3.2 percent is pretty low. And in the past, the savings rate has tended to be low right before the economy starts to slow down. Now, there's no particular reason why this should be the case. We're not exactly sure why this happens. But that is how it has happened. That's how it's been. For example, the savings rate now is just about where it was back in 2005 and 2006, right before the last recession.

GARCIA: The second indicator is -0.2 percent.

VANEK SMITH: Real wages have fallen by .2 percent in the past year. And when we say real wages, what we mean is wages adjusted for inflation. So wages have gone up. People's paychecks have gotten bigger. But at the same time, the prices of the things people buy have gone up even more.

GARCIA: Now, a big part of the reason that inflation climbed as much as it did in the past year is that oil and gas prices really shot up, so Americans were paying a lot more to fill up their cars and trucks with gas. And oil prices are notoriously volatile, so there's a good chance that that spike was just temporary and that inflation may not be as bad going forward. And also, this is just one measure of real wage growth. Specifically, it's the one that comes from the Bureau of Labor Statistics. And it covers people who are not executives or managers - in other words, most people.

VANEK SMITH: Real people.

GARCIA: But other measures might be slightly better.

VANEK SMITH: Still, what's clear from the past year is that a lot of Americans got higher wages, but didn't really get to enjoy them because the amount of stuff they could buy with those wages stayed roughly the same. In fact, it was slightly less than what they could buy with those wages the year before.

GARCIA: Just to be clear, these indicators do not guarantee or even suggest that we're headed for a catastrophe...

VANEK SMITH: Don't panic.

GARCIA: ...Or a recession or even a slowdown. We just wish that they were a little bit better, and we wanted to share them with you. Cardiff Garcia.

VANEK SMITH: Stacey Vanek Smith, NPR News.

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