The Saving Rate (top panel), tracked quarterly, has little benefit as a forecasting tool. It is calculated by subtracting all consumer spending (personal consumption expenditures) from disposable personal income (all personal income less taxes). As a “residual”–i.e., the subtracted difference between two such gigantic numbers–its accuracy in necessarily questionable. Changes in the Saving Rate are often volatile and have historically not provided any reliable guidance to the direction of consumer spending. It is, nevertheless, a interesting general guide to changes in Saving and borrowing (dis-saving).
The bottom panel tracks Y/Y changes in the Saving Rate. If the quarterly Saving Rate rises 2% (200 basis points–see scale) from a year earlier, it theoretically reduces Y/Y consumer-spending growth by 2 percentage-points. If it falls, it increases the rate of growth in consumer spending. As the bottom chart shows, such changes are quite volatile.
Current Comment: As the top panel shows, the U. S. Saving Rate was at 7% or higher from the 1960s through the mid 1980s and was 5% or more until the late 1990s. By 2005-2007, however, it had fallen as low as 2%, reflecting lower Saving and heavier borrowing by American consumers, including the effects of heavy consumer borrowing related to housing. The Saving Rate has risen sharply to 4%-5% in 2008 and 2009 in reaction to the financial crisis and recession. It should be noted that the Saving Rate would have to go even higher than current levels to have a further dampening effect on Y/Y real-consumer-spending comparisons. If it remains at current levels, its effect on Y/Y real consumer spending growth would be neutral.
