David Hernandez, CFA
This week’s chart shows the personal savings rate from January 1959 to February 2012. The average for that time period is represented, along with averages over the last 30, 20, and 10 years. Averages are plotted according to their respective time periods.
The chart shows a noticeable decline in the personal savings rate over the 53 year period. The 53 year average is 7% compared to a 30 year average of 5.2%, a 20 yr average of 4.1%, and a 10 year average of 3.8%. Since consumers are saving less, they are spending more. This phenomenon has driven growth in consumer expenditures which in turn has contributed to growth in GDP. In the mid 1960s, consumer expenditures accounted for 61% of nominal GDP. By the early 80s it increased to 65.7% and in 2008 to 70.5%. The health of the economy has become more dependent on consumer spending.
During recessions the personal savings rate tends to spike up as consumers become more conservative. We saw this occur in the most recent recession with the savings rate climbing as high as 8.3%. As the economy has rebounded fear has subsided and consumers are spending more. In addition, with interest rates so low, consumers have less incentive to save. This has led to a personal savings rate of 3.7% in February 2012, which is below the 10 year average.
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