Meet the Author

O. Emre Ergungor |

Assistant Vice President and Economist

O. Emre Ergungor

Emre Ergungor is an assistant vice president and economist in the Research Department at the Federal Reserve Bank of Cleveland. He is responsible for the household finance section of the Banking Policy and Analysis Group, which conducts research on regulatory policy and banking issues and provides advice on financial policy formulation. He also oversees the Federal Reserve System’s Muni Financial Monitoring Team (FMT), which monitors municipal bond markets, state and local funding, and public pension funds. Dr. Ergungor specializes in research related to financial intermediation, information economics, housing policy, and credit access in low- to moderate-income households.

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Meet the Author

Patricia Waiwood |

Research Analyst

Patricia Waiwood

Patricia Waiwood is a research analyst in the Research Department of the Federal Reserve Bank of Cleveland. She joined the Bank in October 2011, and her work focuses on macroeconomics, financial economics, and banking.

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Economic Trends

Recent Changes in National Savings

O. Emre Ergungor and Patricia Waiwood

Economists study national savings—the share of national output not consumed by households, businesses, or the government—because it is the main source of funds available for domestic investment in new capital goods (used to produce other goods and services). Capital accumulation, in turn, is a key driver of productivity gains and rising living standards. Put simply, saving finances investment. This article examines recent trends in national savings, and household savings in particular.

National savings began to decline long before the start of the recession in 2007. Net national savings (national savings minus the estimated deterioration of the existing capital stock) fell below 6 percent of national income in the early 2000s and continued to fall through the end of the recession, changing course just briefly in 2006 to brush against 4 percent. Since the beginning of 2009, net national savings have been negative, which means that as an economy, the United States is a net borrower. The borrowed funds are supplied by foreigners, who invest their savings in U.S. assets.

There is a simple way to identify the sources of the decline in national savings. Total national savings can be divided into its constituent parts: private and government savings. Private savings, in turn, can be divided into the savings of households and businesses.

Looking at these constituent parts suggests that the biggest source of decline in national savings over the past few years is lower savings at all levels of government. In the case of government savings, a negative number means that spending is exceeding revenues. State and local as well as federal government savings have been securely in the red since the early 2000s, although state and local government savings rose into low positive territory between 2004 and 2007. On the other hand, private savings have been positive over the same time frame.

Looking more closely at household savings, we see that they have been positive in recent years. Savings as a percent of disposable personal income have lingered around 3 percent recently and now sit at 3.4 percent.

Two closely watched measures of household leverage have been declining recently, suggesting that households have been more inclined to deleverage as they save. The New York Fed’s most recent Household Debt and Credit Report shows that aggregate consumer debt fell in the third quarter of 2012 by $74 billion, continuing a nearly four-year downward trend. As of September 30, 2012, total consumer indebtedness was $11.31 trillion, 0.7 percent lower than its level in the second quarter of 2012 and down $1.37 trillion from the peak in the third quarter of 2008.

The data also suggest that households have not been as inclined to invest as to deleverage. Household investment as a percent of GDP is currently 0.8 percent, a level that seems normal relative only to where it has been since the end of the recession. However, 0.8 percent is significantly lower than prior to the start of the recession, when it was 2 percent.