Economic Snapshot: Personal Saving Rate

Fourth Quarter 2006

Q1-06 Q2-06 Q3-06 Q4-06
Growth Rate-Real Domestic Product 5.6% 2.6% 2.0% 2.2%*
Inflation Rate-Consumer Price Index 1.9% 5.0% 3.1% -2.1%
Civilian Unemployment Rate 4.7% 4.6% 4.7% 4.5%

* preliminary estimate



What is personal saving?

Economists define saving as that part of after-tax income that is not consumed. Households, therefore, have just two choices with their incomes after taxes - to consume or to save.


Why would economists be concerned about low saving rates?

Saving is used to finance investment in real capital, such as machinery, equipment and new construction. Therefore, saving is critical to an economy's rate of capital accumulation, which, in turn, is related to economic growth, labor productivity and standard of living.


What are the consequences for a country that has a low saving rate?

Some combination of the following is likely - the country will have a reduced investment rate or, if it invests at a rate exceeding its saving rate, it will have to borrow more from other countries.


What has happened to the personal saving rate since the early 1990s?

It has become negative, which means that the U.S. economy is using the saving of other countries to finance real capital development.


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