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BIG SPENDERS--AND BIG SAVERS
Economists spy an inconsistency
With consumption so strong lately, you might think consumers have been throwing caution to the winds and putting less away for a rainy day. In fact, Commerce Dept. statistics show that the personal savings rate has been moving up since 1994 (chart) and recently hit a four-year high.
This picture of buoyant spending accompanied by stronger savings may well have played a part in the Federal Reserve's decision to push up interest rates. It suggests that, whatever the debt woes of some groups, consumers overall are in good shape to keep on spending briskly--and even dip into savings if something strikes their fancy.
Several economists, however, think the evidence that consumers are squirreling away more cash is questionable. The object of their disaffection is the conventional personal savings rate, which is derived from Commerce Dept. data. Because it is a "residual"--that is, calculated by subtracting consumption from aftertax income and doesn't directly measure anything--this rate can be highly unreliable, argues Bruce Steinberg of Merrill Lynch & Co.
Steinberg's preferred measure is one derived from the Fed's "flow of funds" data. Based on actual financial flows, this savings rate, which usually moves in the same direction as the Commerce Dept. measure, has been trending down since 1992--and touched a record low in the second half of last year.
David A. Levy of the Jerome Levy Economics Institute thinks that overstated savings help explain the recent rise in the so-called statistical discrepancy--the gap between income and output measures of the economy (BW--Dec. 30). "The true savings rate is probably down sharply," he says.
Both economists believe that the real spur to consumer spending over the past year has been a sizable "wealth effect" resulting from the stock market's bull run in 1994-96. With savings low and spending keyed so much to financial wealth, the risk, says Steinberg, is that "consumers may turn out to be a lot more sensitive to falling stock prices than they were to rising ones."
If he's right, Fed tightening could cause a far more severe retrenchment than the Fed has been anticipating.BY GENE KORETZReturn to top
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CURING EUROPE'S FERTILITY WOES
Sweden may have an answer
Female fertility rates in Western Europe are so low that many nations could experience declining populations in the next century--a development that would exacerbate the heavy economic burden posed by a rising share of elderly citizens. In an article in Population and Development Review, demographer Jean-Claude Chesnais looks at one country where this problem appears most severe and then examines another that seems to have developed ways to deal with it.
In Italy, notes Chesnais, the fertility rate has fallen precipitously from 2.4 children per woman in the early 1970s to 1.2 today. In Sweden, by contrast, the rate in recent years has averaged about 2 children per woman--the highest in Western Europe and just below the replacement level of 2.1 children.
The irony, Chesnais notes, is that Italy is still in many respects a traditional, family-oriented country. Only 1 out of every 13 Italian children is born out of wedlock, whereas the rate is 1 out of every 2 in Sweden.
Why, then, has fertility plummeted in Italy? Chesnais singles out two factors: changing social roles for women and reduced benefits for children. As the result of major educational and vocational strides in recent decades, young Italian women want to be more than just wives and mothers--a trend that men seem to be resisting. Meanwhile, the share of child benefits in the government's social budget has shrunk from 13.3% in 1970 to just 3.9% in 1992.
By contrast, the status of women in Swedish economic and political life is well-established. Some 85% of working-age women hold jobs, and 40% of the members of Sweden's Parliament are women. At the same time, social benefits such as child-care services, paid parental leave for both parents, and child allowances are extensive. With strict rules against deadbeat dads, child poverty is low even in single-parent families.
Sweden's example, says Chesnais, suggests that raising the status of women--and thus their influence on public policy--may be a precondition for returning fertility to replacement levels in advanced industrial nations.BY GENE KORETZReturn to top