Americans are saving?!

What?! Since when do Americans save? Well, according to the latest figures, the personal savings rate in the United States was up to almost 3% for the second quarter of '08, the highest its been in at least five years, and is predicted to at the very least stay at this level for a while. This is an interesting development. 

This news bodes well for the American economy in the long run, as "domestic savings create a pool of money from which companies can borrow to invest in new plants and equipment, creating the jobs that push living standards higher over time. A growing domestic savings pool could also reduce America's need to borrow money overseas - which would make the U.S. less beholden to foreign creditors who now supply us with hundreds of billions of dollars in financing every year."

However, in the short run, "saving more means spending less - which translates into more hard times in retail and other consumer-driven businesses like the auto industry. The latest evidence of the shift came in Wednesday's steeper-than-expected pullback in retail sales. They dropped 1.2% in September, in their first year-on-year decline in six years and only their third drop in the past 16 years. Given that two-thirds of economic activity is consumer spending, today's thrift [may] exacerbate a general downturn and [may] weaken the impact of the massive interventions the government has made in the financial markets."

This development has consequences for the predicted (or actual, depending on your definition of the term) recession and recovery.  If Americans aren't willing to go out and do what they do best (shop and eat) and instead stuff their money under the mattress, it is a signal that the American economy may be in for a longer and deeper recession than originally predicted. Furthermore, the recovery from the Great Financial Crisis of 2008 (catchy huh?!) and its ensuing recession may take longer than we thought it would. (We may be sitting here in the 3rd and 4th quarter of 2010, still awaiting the recovery to begin.) 

So I say unto you America, shop, baby, shop!