NCPA - National Center for Policy Analysis

Despite A Vibrant Economy, U.S. Savings Rate At A 63-Year Low

August 4, 1998

Analysts are puzzled why Americans' personal savings rate has continued to decline, despite the current health of the U.S. economy. They insist that savings do matter to a nation's economic health.

  • Americans' personal savings rate dipped to 0.2 percent in June, the lowest level since the government began tracking savings on a monthly basis in 1959.
  • Despite seven years of economic growth, the personal savings rate dipped to a 63-year low of just 2.1 percent last year (see figure).

Part of the problem is how savings are measured. The personal savings measured by the Commerce Department reflect income left after spending. But government does not count capital gains as income. For instance, the purchase of a car counts as spending -- even when the money to buy the car comes from sale of stock which doesn't get counted as income.

But this does not entirely explain the problem. Although economists say stock owners may be spending more freely, the Federal Reserve estimates that 59 percent of U.S. households have realized no benefit from the bull market because they own no stock. And both Commerce's savings rate and a separate saving statistic kept by the Federal Reserve have been headed lower for 50 years, during booming markets and stock market declines.

The national savings rate, which includes business and government savings in addition to personal savings, has actually been doing better. That is because the federal government has managed to whittle down its deficit from $290 billion in 1992 to a projected surplus of $63 billion this year.

Source: Martin Crutsinger, "Slumping Savings: 63-year-low in U.S. rate puzzles economists," Dallas Morning News, August 4, 1998.


Browse more articles on Economic Issues