Savings Rate Up, Consumption Down

Chart of the Week for February 20 - February 26, 2009

The U.S. personal savings rate rose to 2.9% for the fourth quarter of 2008, while U.S. personal consumption contracted. This is significant since higher savings rate coupled with lower levels of consumer consumption could slow or delay an economic recovery. The savings rate is measured by personal savings as a percent of disposable income and personal consumption represents consumer spending on goods and services. The chart above compares the savings rate and the percent change in personal consumption for each quarter beginning in 2000.

Cutting discretionary spending and increasing saving may be appropriate and beneficial at the individual level. However for the overall economy, especially during these unprecedented times, it may translate into fewer sales and fewer products being produced. The lower Gross Domestic Product in the 4th quarter of 2008 may already reflect this impact.

Saving is important for many reasons, including for retirement security, and the current rate brings the U.S. back to levels seen between 2000 and 2004. If savings are invested, it may help fuel future economic health.

This illustration was compiled by information from outside sources. These companies are not affiliated with ICMA-RC. This information is being provided for educational purposes and is not intended to be construed as or relied upon as investment advice. ICMA-RC does not offer specific tax or legal advice. Individuals are advised to consider any new investment strategies carefully prior to implementing.

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