NCPA - National Center for Policy Analysis


February 22, 2007

The so-called personal saving rate is a highly misleading indicator of the consumer balance sheet.  A basic problem is that it mixes together current workers with retirees who should be expected to spend much more than they earn, say economists Brian S. Wesbury and Robert Stein.


  • One academic economist has calculated that excluding retirees from the figures would add about 4 percentage points to the saving rate. 
  • Moreover, this error should grow over time as the United States ages and healthcare costs (a major purchase for retirees) continue to grow.

Another problem with the saving rate is that when consumers buy durables -- think cars, furniture and appliances -- the spending is counted right away even though payments will be made over time:

  • Amortizing these purchases would push up the saving rate another 2 percentage points.  Interestingly, despite this treatment of durable goods, the government does subtract housing depreciation from income. 
  • And because home prices have climbed dramatically in recent years, depreciation has climbed.  In 2006, this depreciation subtracted $226 billion from saving - it did not affect consumer cash flows, but pushed the "official" saving rate into negative territory.

A much better measure of true savings is the net worth of households, a statistic calculated by the Federal Reserve:

  • As of September 2006 (the latest data available) U.S. households had $54 trillion more in assets than liabilities, an all-time high. 
  • Moreover, total net worth had increased by $3.5 trillion from the year before. 
  • If this $3.5 trillion increase in net worth were used as the appropriate measure of personal saving, the saving rate was 37 percent last year and has averaged 33 percent the past ten years, a far cry from the "negative saving rate" which so many pessimists decry.

Source: Brian S. Wesbury and Robert Stein, "Saving Grace," First Trust Portfolios, February 20, 2007.


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