NEW YORK (CNN/Money) -
The savings of U.S. consumers are:
a) at the lowest rate since the Depression.
b) at peaks not seen even during the stock market boom of the late 1990s.
c) all of the above.
If you're wondering how "all of the above" could be the correct answer -- and it is -- walk outside your front door and look around.
Even as a government report Tuesday showed the national savings rate at zero -- that's right nada -- the rise in the value of homes has given the average U.S. household a net worth of greater than $400,000, according to a separate report from the Federal Reserve.
Household real estate assets have risen by just over two-thirds since 1999, and the run up has enabled consumers to spend more money than they are bringing home in their paychecks. They're viewing their homes almost like ATM's, using home equity loans and refinancings to pull out cash and support a higher level of spending.
"[Rising home values] are making people feel they don't need to save," said Lakshman Achuthan, managing director of the Economic Cycle Research Institute.
That means they are spending more of their paychecks than they would otherwise. That's good news for the current economy but it could cause trouble longer term, according to some economists.
A zero savings rate
The Commerce Department calculates the savings rate by taking the difference between after-tax income and all expenditures, including housing, food and clothing.
June was only the second month the rate was at zero since the monthly figure started being calculated in 1959. The annual rate for 2004 was 1.8 percent; the last time the annual rate was lower was 1934.
Strong auto sales in June played a big part in the latest read on the savings rate. The government counts the entire price of the autos purchased during the month, even though most consumers pay for vehicles over time.
But even if that zero savings rate is a bit of a quirk, the trend towards lower and lower savings rates is unmistakable. In May, before the current "employee pricing" offer from automakers, the savings rate was only 0.4 percent, or 40 cents for every $100 of take-home pay.
As recently as 1994, the savings rate was nearly 5 percent. Go back 25 years and double-digit savings rates were the norm.
In fact, the government's calculation may even overstate how much of a typical paycheck is going into savings.
Any money directed into 401(k) plans is considered to be part of take-home pay in the government calcuation. But that 401(k) money isn't available to spend.
Take a person who contributes 10 percent of income to a 401(k). If the government counts him or her as having a zero savings rate, he or she is actually spending about 10 percent more than the actual take-home pay, liquidating assets or taking on debt to support spending.
One of the factors driving down the savings rate is rising energy costs, said Robert Brusca, economist with FAO Economics. He estimates the rate would still be in the neighborhood of 2 to 2.5 percent seen two years ago, before energy prices started moving higher.
Problems seen ahead
The low savings rate has kept consumers spending, which in turn has kept the economy growing.
"We've backed ourselves into a very dangerous situation," said Dean Baker, co-director of the Center for Economic and Policy Research. "The economy is dependent on everyone consuming like crazy. If everyone heard my diatribe and said, 'Yeah, we better start saving,' the economy would go into a recession."
And while it's not going to be the warnings of economists that start people saving, the slowing of housing price growth or actual declines will put brakes on the spending as people will run out of equity they can tap.
The savings rate will also have more downward pressure as Baby Boomers start retiring and drawing down on retirement savings. While Social Security benefits count as income, withdrawals from 401(k) and other retirement accounts do not.
So if there is no change in the spending habits, the aging of the U.S. workforce could soon make zero or negative savings rates the norm.
"I find it just odd for all these economists and policy makers to be cheering for all this consumer spending when we're just digging ourselves into a hole," said Brusca. "With all the obligations we have ahead, to retirees and to ourselves, we have all the reasons in the world for people to be saving more and be controlling their spending."
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