View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

Economic SYNOPSES
short essays and reports on the economic issues of the day
2009 ■ Number 46

Personal Saving and Economic Growth
Daniel L. Thornton, Vice President and Economic Adviser
he U.S. personal saving rate increased to nearly 5
a simple observation. Nevertheless, the direction has been
percent in the second quarter of 2009. Although
positive.
saving has its advantages, many analysts fear that a
That personal saving and growth are likely to be posirising saving rate could hamper the economic recovery:
tively related in the long run does not preclude the possibilConsumer expenditures are such a large component of
ity that a higher saving rate can slow economic growth in
aggregate demand that even a small decline in consumption
the short run. To investigate this possibility, we calculate
could have a noticeable effect, and more saving means less
the simple percent correlation between the saving rate in
consumption. We look at the data on the U.S. personal
the current quarter and the growth rate of output in the
current quarter and in the next eight quarters. This is shown
saving rate and GDP growth since 1948 for some insight
in the table.
into how likely it is that increased personal saving will slow
economic growth.
The chart shows both the quarterly U.S. personal saving
Many analysts fear that a
rate (personal disposable income less personal outlays) and
the annualized growth rate of real gross domestic product
rising saving rate could hamper
(GDP) over the period 1948:Q1–2009:Q2. The personal
the economic recovery.
saving rate increased from about 6.0 percent in the late
1940s to a peak of 12.5 percent in 1975:Q2, then declined
to 1.2 percent by 2007:Q4, and has since increased to 4.9
The correlation is about 5.5 percent in the current
percent. Over these same periods, output grew at 3.8, 3.2,
quarter, increases monotonically to 15 percent six quarters
and –2.4 percent rates, respectively.
Most economists believe that
long-run economic growth is directly
20
Personal Saving Rate
linked to economic fundamentals
Growth Rate of Real GDP
such as the stock of capital, techno15
logical innovation, trade policies,
government tax policies, and so on.
10
A higher saving rate does mean less
consumption, but it could also result
5
in more capital investment and, ultimately, a higher rate of economic
0
growth. In this respect, it is interesting that the growth rate of real GDP
–5
has been higher on average when
the personal saving rate is rising than
–10
when it is falling. Of course, it would
be incorrect to conclude that the
–15
higher saving rate was responsible for
the faster economic growth, because
SOURCE: Bureau of Economic Analysis/Haver Analytics.
many things that affect economic
growth are not accounted for in such
1948:Q1
1949:Q2
1950:Q3
1951:Q4
1953:Q1
1954:Q2
1955:Q3
1956:Q4
1958:Q1
1959:Q2
1960:Q3
1961:Q4
1963:Q1
1964:Q2
1965:Q3
1966:Q4
1968:Q1
1969:Q2
1970:Q3
1973:Q1
1971:Q4
1974:Q2
1975:Q3
1976:Q4
1978:Q1
1979:Q2
1980:Q3
1981:Q4
1983:Q1
1984:Q2
1985:Q3
1986:Q4
1988:Q1
1989:Q2
1990:Q3
1991:Q4
1993:Q1
1994:Q2
1995:Q3
1996:Q4
1998:Q1
1999:Q2
2000:Q3
2001:Q4
2003:Q1
2004:Q2
2005:Q3
2006:Q4
2008:Q1
2009:Q2

T

Economic SYNOPSES

Federal Reserve Bank of St. Louis

2

Percent Correlation
(current quarter)
0
1
5.54

5.75

2

3

4

5

6

7

8

6.20

8.73

8.90

13.13

15.00

13.13

12.05

ahead, and then declines. All correlations are positive,
suggesting that a higher saving rate in the current quarter
is associated with faster (not slower) economic growth in
the current and next few quarters. However, these correlations are relatively small, suggesting that the relationship
is rather weak. Again, it would be incorrect to infer a
causal relationship here, but these correlations suggest that

any possible negative effect of higher saving rates on
short-run economic growth has been consistently offset by
the positive effect of other factors. Hence, a simple analysis of these data does not support the view that the recent
rise in the personal saving rate will impede the economic
expansion that appears to be under way. ■

Posted on December 17, 2009
Views expressed do not necessarily reflect official positions of the Federal Reserve System.

research.stlouisfed.org