A Note on the Savings Rate

Abstract

This paper deals with the manner in which personal savings are computed in the National Income and Product Accounts. In particular it focuses on the treatment of the imputed flow of services from the stock of durables, especially housing. This paper presents an altemative estimate of personal savings based on a household cash flow concept. estimate is then compared with the NIPA and the FRB estimates of personal savings. new computed rate shows a much sharper decline than the NIP A or FRB rates. key nature of savings in capital formation led Feldstein [1977] to write that, The division of national income between consumption and saving is probably any economy's most important macroeconomic characteristic. Large government deficits in the 1980s have intensified these concerns. Analysis of the country's savings behavior is usually based on estimates made by the National Income and Product Accounts (NIPA) or the Federal Reserve Board (FRB). However, as recently noted,l there are substantial discrepencies between the NIPA savings estimates and those made by the Federal Reserve Board.2 Indeed, it is surprising that such an important national statistic has been subjected to so little scrutiny.3 Address correspondence to Professor Dale Heien Department of Agricultural Economics, University of California, Davis, California. Journal of Economic and Social Measurement 14:87-89 (1986) Copyright © 1986 by Elsevier SCience Publishing Co., Inc. This paper focuses critical attention on the manner in which savings are computed in the NIPA. In these accounts, savings are the difference between disposable personal income and personal outlays. Personal outlays in tum are the sum of personal consumption expenditures, interest paid by consumers to business and personal transfer payments to foreigners. Most components of both income and outlays are measures of actual economic activity, e.g., wage and salary income, clothing expenditures, etc. However, one important component of peE is not a measure of actual economic activity. This component is imputations, the largest of which is the space rental value of owner-occupied dwellings. 4. This figure is an attempt to measure what the rental expenditures would be for homes which are occupied by the owners. Regardless of how much effort is expended on this measurement it does not correspond to any actual expenditure on the part of consumers. Hence, the question of accuracy of measurement is not relevent. These imputations are consistent with the philosophy of measuring the current consumption from the stock of durables. 5 However since these imputations do not correspond t~ any actual expenditure, and since they are quite large, any reSidually computed savings rate is very sensitive to the magnitude of the imputations. This note presents an alternative estimate of personal savings based on a household cash flow concept. first part of Table 1 shows the NIPA computation of personal savings for 1982 of