In his insightful work, The Decline in Saving: A Threat to America’s Prosperity?
By Barry Bosworth
Summary via publisher, Brookings Institution Press. Longtime Brookings economist and former presidential adviser Barry Bosworth delves into the troubling decline of saving rates in the United States over the last 25 years. He explores the unexpected mild consequences of this trend initially and predicts how lower saving rates may impact the future prosperity of Americans. Before the financial crisis, American households experienced a dramatic decrease in saving, driven by a prolonged period of excessive spending. While saving rates have increased recently as families work to recover from significant losses in the stock and housing markets, the earlier habits of overspending have deeply affected national finances. Government budget deficits have also soared, with cumulative external deficits surpassing $7 trillion, making the United States the world’s largest debtor nation.
According to the January update from the Conference Board’s leading indicator index, the economy is expected to continue its growth in the near term. “This fourth consecutive gain in the LEI reflects a broad base of strength among its components, suggesting more favorable economic conditions as we move into early 2012,” noted Conference Board economist Ataman Ozyildirim in a press release.
The Labor Department reports that the pace of headline inflation has decelerated in the past month. Consumer prices increased by 2.9% for the year ending in January, a slight reduction from December’s annual rise of 3.0%. Meanwhile, core inflation—excluding food and energy—rose to 2.3%, subtly up from the previous month’s 2.2% rate. What does this mean for consumers? For now, there hasn’t been a significant change compared to the last report. However, given the ongoing circumstances we find ourselves in, a higher inflation rate can be viewed as a positive sign. Today’s Consumer Price Index (CPI) release presents a mixed bag of results.
The popularity of actively managed asset allocation products is on the rise. The supply of these products is expanding rapidly, offering a variety of strategies ranging from conservative balanced funds to more aggressive trading-oriented approaches, available in both open-end mutual fund and ETF formats. However, one fact remains constant: beating a passive benchmark across all major asset classes continues to be a challenge. This reality serves as a reminder that actively managed multi-asset class funds come with their own set of risks. While they shouldn’t be ignored, investors must acknowledge that outperforming benchmarks won’t be easy. Ultimately, the task at hand is to assess whether the potential rewards outweigh these challenges.
Initial jobless claims decreased once again last week, dropping by 13,000 to a seasonally adjusted total of 348,000, as reported by the Labor Department reports. This marks the lowest number of new unemployment benefit claims since March 2008. The data suggests a robust trend indicating ongoing recovery in the labor market, which is closely tied to economic growth.
Recently, I posed the question of whether the housing market has finally reached its nadir. The argument for a positive outlook appears compelling, yet the significant question remains whether housing will contribute meaningfully to overall economic growth. The timeline for this recovery remains uncertain, but the optimism is increasingly warranted. Upcoming data on January’s housing starts, to be released later today, could provide valuable insights. The consensus forecast anticipates a modest increase compared to December, as noted by Briefing.com.
Earlier today, I discussed the significant doubts surrounding the proposed return to a gold standard as a solution to economic instability, a notion advocated by some pundits and a few Republican presidential candidates. Advocates of gold often assume it as a trustworthy inflation hedge over time. However, evidence suggests that gold’s effectiveness in this regard may not be as robust as commonly believed. As noted by The Free Exchange at Economist.com there exists a “gold puzzle” that requires further investigation.
The Federal Reserve reports that industrial production remained largely unchanged last month. Despite economists’ expectations for a significant increase, this news is somewhat disappointing. However, it’s too early to deem this as a negative sign for the economy; industrial production alone does not provide a comprehensive outlook for the business cycle. While this data can support other warning signs during economic downturns, currently, the overall growth rate in industrial production is still quite healthy. There’s no evidence here suggesting an impending economic downturn. So, while this could be indicative of future complications, it may also simply be noise—rendering the recent data inconclusive.
The push for a return to the gold standard as a remedy for economic volatility has gained traction in populist circles recently. Promising a more stable business cycle requires no explanation. Some Republican presidential candidates have openly supported this idea, and various pundits, including former Wall Street Journal editor George Melloan, have echoed calls to “return to the gold standard” in publications like The American Spectator. Regrettably, this notion is misguided, based on a flawed interpretation of economic history. While hard money advocacy may energize a crowd, a careful examination of past events raises significant questions that proponents, like Melloan, rarely address adequately.
The government reports that retail sales increased by 0.4% last month. Although this growth falls short of many economists’ expectations, it should not raise any alarm bells. In fact, the rebound in January’s retail sales following a slower pace in December is encouraging.
