The "Savings" Rate

The BEA includes personal savings and the personal savings rate in the Personal Income and Outlays Report. Personal savings is defined as the difference between consumers’ disposable incomes—the money they have available to spend—and what they actually spend, their personal outlays. This estimation is based on the economic principle that there are only two things that a person can do with

EXHIBIT 7.12 Transfer Payments as a Percent of Disposable Income

income, spend it or save it. In essence, this is an easily appreciated condition. This figure expressed as a percentage of disposable income is the personal savings rate. The May 2014 computation of the personal savings rate, for example, was:

Disposable personal income $12,877.2 billion

Less personal outlays $12,256.9 billion

Personal savings $620.3 billion

Expressed as % of disposable personal income: $620.3 -E $12,877.2 X 100 Equals personal savings rate: Approximately 4.8%

This figure suggests that consumers save about 4.8 percent oftheir disposable personal income.

There’s something inherently misleading about this estimate. Think about your family’s savings. What are the two largest holdings that they (or any household, for that matter) might have that make up their savings? A home and stock and bond market investments. While many might not feel as if the purchase of a home is a savings, economists look at homes as if they are. When the BEA estimates GDP, where does residential construction fall? Investment. And the other form of investment, stocks and bonds, is also not included in this calculation.

Such a savings rate lacking these two popular forms of “savings” makes this estimate one of the worst measures that are used on the Street today (Exhibit 7.13). Take this measure with a grain of salt.

 
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