Cited: CNN

Market watchers are concerned that Americans are dipping into their savings at alarming rates and that it could be the undoing of the recovery as soon as savings reach rock bottom. Economists say that more people are scaling back their contributions to college funds, and worse yet, borrowing from retirement funds, despite the tax penalties incurred when doing so. Much of the spending is going toward day-to-day spending, which is also worrisome. In addition, some fear that a return to using credit cards for purchases like groceries, or monthly bills will increase and that is an ominous sign for future economic growth overall.

Analysts point to lower savings levels, which have dipped to levels not seen since 2007, as a sign that consumption is being fueled by savings and that this is unsustainable going forward. The personal savings rate fell in November to 3.5%, down from 5.1% a year earlier according to the U.S. Commerce Department. 

While some economic indicators have been showing signs that the economy is finally starting to pull out of the recession, many are not convinced about the longer term viability of this uptick, and that lower savings rates could be one indicator that the worst may not be over just yet. The savings rate is seen as falling from necessity with things like food and energy costing more and people having no choice but to find a way to pay for vital services such as food and utilities. And in the past when Americans borrowed record amounts against their homes now the trend is shifting to borrowing against retirement plans and other saving vehicles in order to keep their heads above water.

My take:

It is a shame to fathom that most middle class families, even those with both husband and wife working, cannot afford the basics of supporting a family while trying to save a little for a rainy day, or college. It won’t be long now before we hear the Wall St. overlords whining about the drop in 401k programs hurting their bonuses.