Perspectives on the Household Saving Rate

Abstract

We evaluate official saving rate measures in light of the recent decline of NIPA personal saving to effectively zero. We find, like others, that official saving measures are not representative of basic economic concepts, and that various adjusted measures of saving have moved in markedly different directions over the past two decades.In particular, although NIPA personal saving declined from about 5 percent of GDP in the 1970s and 1980s to less than 0.5 percent in 1998, a measure that adjusts personal saving for durables, retirement accounts, inflation, and tax accruals, and integrates personal and business saving fell from about 9 percent of GDP in the 1970s and 1980s to 7 percent in 1998. Using this measure, which we would claim is closer to an economic concept of saving, the decline is much smaller, and the current level of saving is much higher, than under the conventional measure. Adjusted Flow of Funds saving data show a similar decline. They also show that borrowing is not significantly out of line with prior years, and that the vast portion of the decline is concentrated in net acquisitions of non-retirement assets.Adding capital gains fundamentally changes recent trends. With all capital gains included, the adjusted household saving rate is the highest in at least the last forty years, despite the personal saving rate being zero. However, it remains controversial whether it is appropriate to include capital gains in general, and the recent capital gains in particular, in saving.Our findings suggest that, in principle, all discussions of whether saving has risen or fallen, and by how much, need to be qualified by the concept and measure of saving employed. In practice, this distinction appears to be particularly crucial when considering data over the recent past.