Savings Rate: How Much Higher?

An increase in the U.S. savings rate is good news over the long term. But if the steep incline continues, it could jeopardize economic recovery.

The savings rate isn’t likely to shoot much higher in the coming months. There’ll be no quick return to the 9% to 12% level common during the 1970s and early 1980s, which would have a devastating effect on consumer spending. Every percentage point increase in the savings rate knocks about $115 billion off consumer spending—by far the biggest driver of the economy and the biggest question mark about the strength of the recovery.

A more gradual rise will simply dampen consumer spending growth, not stifle it. Look for the recent steep incline in the savings rate to flatten out, settling between 7% and 10% over the course of the next few years. A decades-long downtrend hit bottom at 1.2% during the first quarter of last year, before rising a remarkable four percentage points to 5.2% in the second quarter of this year.

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Jerome Idaszak
Contributing Editor, The Kiplinger Letter
Idaszak, now retired, worked on The Kiplinger Letter as its economics writer for 21 years. Before joining Kiplinger in 1992, he worked for 15 years with the Chicago Sun-Times, including five years as a columnist and economic correspondent in the Washington, D.C., bureau, covering five international economic summit meetings. He holds bachelor's and master's degrees in journalism from Northwestern University.