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A Fun Fact About the Savings Rate

Posted by: Michael Mandel on February 03

With all the discussion about today’s savings rate, it’s important to point out an important fact. Savings is a residual: That means the government measures disposable income and consumption spending. Then they subtract the second from the first, and what’s left is savings.

The implication is that any revisions in either income or consumption immediately and directly affect savings in a big way. For example, suppose that the income of a family is measured as $100 and its consumption is measured as $95. That leaves savings of $5, or a 5% rate.

But if measured income is revised up to $105—a 5% increase—then savings will be revised to $10, and the savings rate will nearly double to 9.5%.

What does this have to do with the real world? Let’s take a look. First, here is the familiar chart of the personal savings rate, as currently reported by the BEA:


In this chart, the savings rate takes an inexorable plunge down, from roughly 11% in 1981 and 1982 to almost nothing in recent years. Oh, those early Americans were such good savers…

But wait! Here’s another chart, of the personal savings rate as originally reported. That is, for each year I used the savings rate as reported in the Survey of Current Business, the February or March issue of the next year (i.e. I got the 1981 savings rate from the February 1982 SCB).


Hmph…all of a sudden that previous generation doesn’t look quite so prudent. The savings rate in 1981 is reported today as 10.9%, but at the time it was originally as 5.3%. Or take 1986—today it looks like the savings rate was a strong 8.2%, but at the time it was originally reported with a savings rate of 3.8%, less than half. In fact, through most of the early 1980s, journalists and economists were bemoaning the low savings rate, based on the numbers they were seeing.

Now, I’m sure Steve Landefeld and his friends at the BEA had very good reasons for revising the statistics (hi Steve!). But it’s worth noting that there are some statistics—and the savings rate is one of them—which are highly prone to large revisions.

On the next page, I put both lines on the same chart.


This chart shows the current savings rate data versus as reported.

Note: For these charts I used the February or March data immediately following the year. But if I wait an extra year, the same pattern remains. That is, the savings rate for 1982 was originally reported as 6.6% in early 1983. That estimate for 1982 was actually lowered to 5.8% by early 1984.

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Reader Comments


February 4, 2009 01:56 AM

If the ex-post revisions of ex-ante savings result from the equilibriating processes, then one is stuck. One should stick with the expected savings rate at the time it was first reported, as that better indicates the current intent of the saver.

Tom E.

February 4, 2009 07:18 AM

I read that the German savings rate is 11%. They have a more extensive safety net than does the US so there should be less reason to save, so I wonder why their savings are so high. Is it because government policies discourage spending? If so, Germany is the largest exporter in the world and they are playing a slick mercantilist game.


February 4, 2009 10:53 AM

Are 401k savings included in what's considered "disposable income"? There's been a non-ignorable shift in how American's save money since the mid-80's when 401ks started to bloom. I'm just wondering how that factors into the charts.


February 4, 2009 12:51 PM

The point escapes me. Both charts tell me our savings rate sucks. Ok, it used to be around 6 rather than around 10. So what? Today its around zero - and that's the problem.


February 4, 2009 01:26 PM

Yeah, I'd like to know, too (re: Wayne's question). Or more to the point - how is disposable income defined?


February 4, 2009 03:58 PM

I wonder if these �savings� include interest paid on debts. For some reason the graph of historical mortgage rates has the same trend as the graph for the savings:


February 4, 2009 09:17 PM

(Re: Bsimon) Appologies for not being clear with my point. I'll try to clarify.

Mr Mandel's article stated "That means the government measures disposable income and consumption spending. Then they subtract the second from the first, and what’s left is savings".

This lead me to think about these calculations from a paycheck point of view (which is probably incorrect). Thinking that what I get after all deductions (i.e. taxes, etc.) is removed from my paycheck is my income, which would then have a consumption spending subtracted from it to get my savings rate. However, I contribute to my companies 401k, therefore, my 401k "savings" contributions are subtracted out of my paycheck before I see any money. So, I kind of jumped to the conclusion (a notoriously bad habit) that the reason the savings rate has been in such a negative trend is that people are essentially hiding their savings from these calculations by having them subtracted out of their paycheck before they get any income.

Now that I typed out this explaination, I can see my initial logic was faulty and that economists must have a much more sophisticated way of computing the true USA "savings rate".

Doing some Google searches on "savings rate" and you often get something along the lines of "The savings rate is computed by taking the amount of personal income left after taxes are paid, an amount known as disposable income, and subtracting the amount of spending". Therefore, I now suspect that 401k savings is included in "personal income left after taxes are paid".

Mike Mandel

February 5, 2009 07:37 AM

Disposable income is personal income after taxes. Savings is everything that is left after consumption. So your contribution to your 401k accounts are counted as personal savings.

Joe Cushing

February 5, 2009 09:49 AM


Higher interest rates are an incentive to save. Lower interest rates are an incentive to borrow and spend. It's no surprise that as interest rates fall, savings falls and spending increases.


February 10, 2009 01:21 PM

It might save time and effort if you just point out whether or not there is a direct measure of savings or not, to use as a cross check. The savings rate discussed and charted here is the only choice for macro measurements. A look at the patterns of included and excluded items would help. Changes in patterns from revisions in the same top line measure is not very informative. Patterns of capital gains in income, stock incentives, and debt financed consumption of homes and cars etc are important. If money measures in the economy are undermined over time and abandoned for policy use,then top line savings measurement can be debunked also. I suppose the difference is lack of choice for a fall back measure.


February 10, 2009 09:44 PM

Years ago, I made a rigorous math proof relating change in savings and growth. The relationship between savings and imports can also be seen at


February 12, 2009 08:54 AM

imagine, however, how nice the curve would look if savings were calculated to include your contribution to social security and medicare (as well as your employer's portion). All of a sudden, our rate doesn't look so bad (try 14% for the average wage earner).

Oh...don't tell me. You mean the Social Security trust account figures I receive don't reflect actual balances due to me?

I've been had!!!

Mike Mandel

February 12, 2009 06:05 PM


Alas. But the savings numbers also don't include the amount saved and spent for education, even though education is an investment in human capital.

Thank you for your interest. This blog is no longer active.



Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.

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