Journal Article

Should the decline in the personal saving rate be a cause for concern?

Abstract: The personal saving rate has received particular attention recently because saving was negative in 2005 for the first time since the Great Depression. Although saving declined in other developed countries during this period, the U.S. decline was more pronounced than in most of these countries. ; A major concern is whether U.S. households are providing adequately for long-term needs, such as future retirement and medical expenses. In addition, low personal saving has created short-run concerns that a sudden increase in the saving rate could reduce growth of consumer spending, real output, and employment. ; But there is another, often overlooked side to this story. Two major factors suggest the decline in the personal saving rate may not be as alarming as it is sometimes made out to be. First, various measurement problems with the personal saving rate from the national income and product accounts suggest household saving may not have declined as much as the statistics suggest. Second, economic theory assumes that households rationally anticipate future labor income and asset returns and plan their spending accordingly. If this assumption is correct, the low personal saving rate may not foreshadow wrenching future adjustments in consumer spending. ; Garner provides some perspective on the decline in the personal saving rate over the last two decades. After weighing the issues, he concludes that, although there are some legitimate reasons for concern, the decline in the personal saving rate may not be as alarming as it first appears.

Keywords: Saving and investment;

Bibliographic Information

Provider: Federal Reserve Bank of Kansas City

Part of Series: Economic Review

Publication Date: 2006

Volume: 91

Issue: Q II

Pages: 5-28