The recent sharp decline in the saving rates of US households isn’t sustainable and will eventually erode consumer spending and, naturally, business, Martin Feldstein, former chairman of the Council of Economic Advisors, told CNBC Friday.
“Households are not saving much, the savings rate used to be 6 ¼ percent, it’s a full percentage point less than that, so that adds substantially to the increase in spending over the last six months,” said Feldstein, who is now a economics professor at Harvard and a member of President Obama's Economic Recovery Advisory Board.
“But that’s not a sustainable way of getting continued increases so that’s the big question going forward."
Feldstein said that while business leaders are expressing confidence, saying that they’re getting more orders, he thinks consumers will have to ramp up savings once again because household wealth remains about 20 percent below pre-recession levels on a real per capita basis.
He added, “We’re more likely to see the savings rate rise over the next year, than to see it continue to fall.”