Economic Growth and Saving Rate

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Economic SYNOPSES short essays and reports on the economic issues of the day
2009 I Number 46

Personal Saving and Economic Growth
Daniel L. Thornton, Vice President and Economic Adviser he U.S. personal saving rate increased to nearly 5 a simple observation. Nevertheless, the direction has been percent in the second quarter of 2009. Although positive. saving has its advantages, many analysts fear that a
That personal saving and growth are likely to be posirising saving rate could hamper the economic recovery: tively related in the long run does not preclude the possibilConsumer expenditures are such a large component of ity that a higher saving rate can slow economic growth in aggregate demand that even a small decline in consumption the short run. To investigate this possibility, we calculate could have a noticeable effect, and more saving means less the simple percent correlation between the saving rate in consumption. We look at the data on the U.S. personal the current quarter and the growth rate of output in the current quarter and in the next eight quarters. This is shown saving rate and GDP growth since 1948 for some insight in the table. into how likely it is that increased personal saving will slow economic growth.
The chart shows both the quarterly U.S. personal saving
Many analysts fear that a rate (personal disposable income less personal outlays) and the annualized growth rate of real gross domestic product rising saving rate could hamper
(GDP) over the period 1948:Q1–2009:Q2. The personal the economic recovery. saving rate increased from about 6.0 percent in the late
1940s to a peak of 12.5 percent in 1975:Q2, then declined to 1.2 percent by 2007:Q4, and has since increased to 4.9
The correlation is about 5.5 percent in the current percent. Over these same periods, output grew at 3.8, 3.2, quarter, increases…...

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