"neither spending nor saving"

maybe they're zombies trapped in the lost decade.

This isn't unusual--the charts presented with articles often contradict the text. This used to happen with California ballot initiatives all the time, where the text sought to show that education determined voting. Unfortunately the charts showed an interesting difference--that voters with advanced degrees had the same voter distribution as voters who had only high school education.

It appeared that no one ever looked at the charts and said, "Hey, look at this. It contradicts your position."

In fairness to the Times, it's worth pointing out that the point of the awkwardly-phrased claim isn't quite so strange as it seems. Spending and saving are both down because wages are down. You can't spend or save what you don't have.

"maybe they're zombies trapped in the lost decade."

Hmm, "Zombies of the Lost Decade"--has a nice ring to it. Quick, someone call Spielberg and Harrison Ford!

"Spending and saving are both down because wages are down."

Ok, and this observation by the Times enlightens us how?

Dean,

I too found that article interesting. I can't quite get the deflation savings argument either. Your comments on deflation raise a question.

When economists evaluate price trends, just how do they gather their data on prices?

Except for single family residences, construction lumber, and gasoline at the pump, I'm not seeing much evidence of any decline in prices.

Electronics items seem to have a price pattern more reflective of the product cycle retail price maintenance strategies than current economic conditions.

Many of the things I frequently purchase seem to be increasing in price, or at least maintaining the price increases from early 2008. Overall, I find that the advertised bargain prices on a few items that I might purchase in response to a significant reduction -- which form the basis for my anecdotal assessment of inflation/deflation -- seem to be both increasing and less frequently available.

While I know that my perspective is hopelessly biased, I suspect that the price data collected by economists on consumer goods may also be biased in the opposite direction.

Can you answer this question: just how are the prices used by economists to gauge inflation collected and are the collected data more analogous to street prices or manufacturers' suggested prices?

The deflation/consumption argument is typical of what seems to me to be a strange preoccupation of many economists with secondary motivational factors. Perhaps this is because the real motivational factors, such as the consumer's assessment of whether he will have a job in the near future (a gut feeling), are not readily quantifiable.

Interest rates also have little effect on consumers for most items (as demonstrated by the rates on credit-card debt), the major exception being house purchases where the decision to grant a mortgage is not made by the consumer (or at least it was that way formerly).

If I take $200 and stuff my mattress with it, how does that get categorized? I haven't used the money for consumption - it won't show up as a retail transaction somewhere, but I haven't put it somewhere where it will be counted as savings either. My bank won't be able to report to anyone that their deposits increased by $200.

If the savings rate is simply calculated as the percentage of income not spent, then it's hard to figure out how they're spending hasn't changed much but their saving rate is down. But if the savings rate is based on deposits and investments, then there are lots of possibilities, including taking money out and hiding it somewhere.

... And if you think that LCD TVs are only dropping in price at 1% a year, you haven't been following the LCD TV market recently, and haven't heard of the concept of a "sale", particularly a "liquidation sale", where you can find really large price reductions.

@anonymouse, I don't actually read the Times for enlightenment. The "both down" line looks like it came from a headline writer taking a quick look at the graphs.

OTOH, if we're interested in spending vs savings, then surely it's also interesting that both are down in absolute terms. Of course, falling wages are even more interesting.

As others have noted, since the NYT doesn't tell us how the numbers are put together, the huge drop in savings doesn't necessarily mean an equally huge rise in consumption. It's possible that people have been paying down gigantic bubble-era housing debt on long-term mortgages. Some 100 year mortgages were issued, even as the Japanese government (like our current one) tried to artificially pump up the deflating real estate market, http://query.nytimes.com/gst/fullpage.html?res=9E0CE2DD163FF932A0575BC0A964958260&n=Top%2FReference%2FTimes%20Topics%2FPeople%2FM%2FMiyazawa%2C%20Kiichi.

Eyeballing and normalizing the left and center charts (the NYT helpfully provided different scales for all three charts to make them hard to compare), it looks like average annual income dropped from about $46,000 to $44,000 from 1998-2007, and that average annual household monthly spending dropped from about $41,500 (ballpark 10% savings rate) to $38,500 (ballpark 15% savings rate).

So the charts show us that average income dropped by about $2,000 (left chart) and spending by about $3,000 (center chart). Looking at the left and center charts, nonconsumption rose by about $1,000/year. Looking at the right chart (assuming that the right chart is a percentage of the left chart), savings dropped by about $3,500/year. It's hard to reconcile these, although maybe there's a partial explanation if household spending (center chart) includes mortgage payments and all those bubble-era mortgages are starting to have serious amortization.

The income chart uses wages at the exchange rate. The Japanese did not see their real incomes skyrocket in the 1980s only to see them come down in the 1990s.

Here's my attempt at using the income and monthly spending rates to derive the savings rate.

In 1995, estimating a round number for simplicity's sake:

45 grand per year (income);
3400 x 12 = 40.8 grand per year (spending);
4.2 / 45 = a 9.3% yearly savings rate.

But it looks like the Times has about 12% savings rate in 1995.

In 2005,

44 grand per year (income);
3200 x 12 = 38.4 grand per year (spending);
5.6 / 44 = a 12.7% yearly savings rate.

But it looks like the Times has a savings rate of 4%.

I suppose taxes are the explanation? Or more probable, I've misinterpreted something or made a mistake.

By the way, the graphs don't take into account inflation, so does this indicate that there's been a large drop in real wages in Japan? Perhaps if real wages so much, people are more becoming more and more wary of spending.