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Pastimes : Clown-Free Zone... sorry, no clowns allowed -- Ignore unavailable to you. Want to Upgrade?

To: rolatzi who wrote (141828)	1/5/2002 2:01:43 PM
From: rolatzi	Read Replies (3) \| Respond to of 436258

Clown of the week award goes to: Study Finds Savings Picture Not So Glum Saturday January 5 8:19 AM ET By Jonathan Nicholson WASHINGTON (Reuters) - Measures of personal saving by Americans may be extraordinarily low, but that does not necessarily mean households are putting too little aside for retirement, according to a new study by two economists. Increases in wealth -- in the form of rising home values and, until recently, advances in stock prices -- mean many households now have more than traditional savings to fall back on. ``The recent decline in personal saving rates does not in itself indicate that households are ill prepared to finance their retirement or handle unexpected expenses,'' according to Marshall Reinsdorf and Maria Perozek, respectively economists with the Commerce Department (news - web sites)'s Bureau of Economic Analysis and the Federal Reserve (news - web sites) Board. The pair's paper was to be presented at a gathering of economists in Atlanta on Saturday. The paper tackles an issue that has long vexed economists -- trying to reconcile the grim saving picture painted by the BEA's savings data with the knowledge that more people than ever are invested in stocks and other assets with an eye toward retirement. The widely watched saving rate, published monthly by the BEA in its income and spending report, stood at only 0.9 percent of disposable personal income in November, or less than a penny from each after-tax dollar of income. That was up from 0.2 percent in October. For 2000, it was only 1.0 percent, down from 2.4 percent in 1999. RATE WOULD STILL BE LOW The shrinking savings rate has raised alarm among policymakers, who have worried that low savings mean consumer spending, which makes up two-thirds of economic activity, could be vulnerable to a downturn. But some economists have long expressed skepticism about the government numbers. The data don't include the value of some things most people would think of as savings, including capital gains on stock investments. However, the study shows that even adjusting the BEA data to accommodate some of the criticisms, means saving, though higher than the published numbers, has still been on sharp a downward slope in recent years. Excluding the value of defined benefit pension plans, the saving rate would have been slightly higher, according to the paper. Similarly, changing the way long-lasting consumer durable items are counted would also push the saving rate higher, as would adjusting for capital gains. But, the authors noted, ``We find that these adjustments tend to flatten the contour of personal saving somewhat, but not enough to alter the conclusion that personal saving rates have fallen to record lows in recent years.'' HOUSEHOLD WEALTH FALLING To get an idea of household balance sheets, however, the authors instead advised looking to a separate measure, household net worth, based on quarterly data in the Federal Reserve's ``flow of funds'' accounts. That measure tracks asset values held by households, including gains in home prices and stocks held. ``The change in net worth is useful for answering questions about the aggregate value of household wealth, which is an indicator of the future consumption possibilities of the household sector,'' Reinsdorf and Perozek wrote. ``However, it is important to note that the aggregate figures tell us nothing about the distribution of wealth and saving in the population, and therefore have limited value for addressing many important policy questions, including issues of retirement readiness.'' But even by that measure, households have been hit hard by the decline in stock prices recently. According to the Fed's latest data, released in December, household net worth fell by $1.192 trillion in the third quarter of 2001 to $38.701 trillion, its third drop in the last four quarters. Compared with the third quarter of 2000, household wealth fell by $3.810 trillion. While houses added more than $270 million to household balance sheets in the third quarter, declining stocks and mutual fund shares subtracted $1.562 trillion from household wealth. The Fed's data are not adjusted for seasonal variations.