Alternative measures of personal saving.

Kmitch, Janet H.

Personal saving in the national income and product accounts (NIPAs) trended downward from the early 1980s through 2005, falling to 1.4 percent of disposable personal income (DPI) in 2005 (chart 1). In subsequent years, however, the saving rate has trended upward, rising to 5.9 percent in 2009.

The long slide in the personal saving rate from 1983 to 2005 triggered interest in how personal saving is measured and its relation to broader concepts of national saving. As a result, the Bureau of Economic Analysis (BEA) began publishing a number of alternative measures of saving roughly every other year (see table 1 on page 13). (1)

In the NIPAs, personal saving is the portion of personal income that is left over after personal current taxes and outlays for personal consumption expenditures, nonmortgage interest payments, and net current transfers to government and the rest of the world. It excludes capital gains because capital gains represent changes in the prices of assets that are already owned, not unspent portions of income receipts. Personal saving represents the contribution from persons to national saving (see table 2 on page 13), which is the total amount that is available to fund investment in fixed assets, inventories, or foreign assets.

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In this report, new and revised statistics for a number of alternative measures of personal saving are presented. These alternative saving measures differ from the NIPA measure. However, they are still calculated as the residual after consumption and outlays. The statistics in this report reflect the comprehensive revision of the NIPAs, released on July 31, 2009, and the annual revision of the NIPAs, released on July 30, 2010. (2)

The statistics presented in this report include the following alternative measures of saving:

* The saving of households and nonprofit institutions serving households

* A measure of saving reflecting an alternative treatment for the savings derived from defined benefit pension plans

* A measure of saving reflecting an alternative treatment of taxes on realized capital gains

* A measure of saving that treats consumer durable goods as investment

* Other, broader measures

Households and nonprofit institutions serving households

The NIPA measure of personal saving reflects the saving of the personal sector. This sector includes both households and nonprofit institutions serving households. Interpreting the personal saving rate as a measure of the saving behavior of households is reasonable because households are the predominate component of the personal sector. However, a more precise measure of household saving can be derived by separating the components of the personal sector. For all years from 2001 to 2009 except 2005, household saving as a percentage of household DPI was slightly higher than the NIPA personal saving rate (chart 2). The average difference was about 0.2 percentage point from 2001 to 2009, reflecting a negative saving rate by nonprofit institutions serving households for each year except 2005.

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Alternative treatment of defined benefit pension plans

This measure of saving substitutes the benefits received by persons from private and government defined benefit pension plans for the employer contributions to such plans and the interest and dividend income derived from these plan assets. This substitution subtracted about 0.2 percentage point, on average, from the NIPA personal saving rate for 2001 to 2007 (chart 3). From 2002 to 2006, this alternative measure of saving subtracted about 0.3 percentage point from the NIPA personal saving rate each year; for 2001 and 2007, it added about 0.2 percentage point to the NIPA personal saving rate.

Alternative treatment of taxes on realized capital gains

This measure of saving treats capital gains taxes as capital transfers, which reduces personal taxes and raises DPI and personal saving. On average, this measure added almost 1 percentage point to the NIPA annual measure of saving for 2001-2007 (chart 4). This alternative personal saving rate closely parallels the NIPA personal saving rate.

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Alternative treatment of consumer durable goods as investment

This measure of saving treats the purchase of durable goods as investment rather than as consumption. Net investment (purchases of durable goods less depreciation) in consumer durable goods is added to personal saving. From 2001 to 2009, this annual measure of saving averaged 5.1 percent, compared with an average of 3.2 percent for the NIPA measure of personal saving (chart 5).

Other, broader measures of saving

A broader measure of saving for the economy is net private saving, which is the saving of the personal and business sectors. Net private saving roughly parallels that of personal saving, with a difference in annual level of about 2.5 percentage points for 2001-2009 (chart 6). Net national saving is an even more comprehensive measure of saving, including the net saving of government, persons, and business. In 2002-2009, net national saving was lower than net private saving, because of negative net saving by the government sector. Net lending to the rest of the world reflects the amount of foreign saving that the nation relies on to fund its investment needs. The nation's reliance on foreign saving to fund its investment needs grew in 2002-2006 (net lending to the rest of the world became more negative). Net lending to the rest of the world became less negative in 2007-2009 (reliance on foreign saving was somewhat lower in these years).

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(1.) See Marshall B. Reinsdorf, "Alternative Measures of Personal Saving," SURVEY OF CURRENT BUSINESS 87 (February 2007): 7-13, Marshall B. Reinsdorf, "Alternative Measures of Personal Saving," SURVEY 84 (September 2004): 17-27, and Maria G. Perozek and Marshall B. Reinsdorf, "Alternative Measures of Personal Saving," SURVEY 82 (April 2002): 13-24. These articles explain the advantages and disadvantages of the various measures in detail. They also provide an overview of the conceptual framework for measuring saving in the national accounts.

(2.) See Eugene P. Seskin and Shelly Smith, "Improved Estimates of the National Income and Product Accounts: Results of the 2009 Comprehensive Revision," SURVEY 89 (September 2009): 15-41, and Eugene P. Seskin and Shelly Smith, "'Annual Revision of the National Income and Product Accounts: Annual Estimates for 2007-2009 and Quarterly Estimates for 2007:1-2010:1," SURVEY 90 (August 2010): 6-27.

Janet H. Kmitch prepared this report.

Table 1. Alternative Measures of the Personal Saving Rate [Percent]

 1985 1986 1987 1988 1989 1990

Households ... ... ... ... ... ...
Alternative
 treatment for
 defined benefit
 pension plans ... ... ... 5.2 5.0 4.9
Capital gains
 taxes excluded 9.0 8.9 7.5 7.8 7.5 7.2
Consumer durable
 goods as investment 11.2 10.9 9.4 9.7 9.0 8.3
Addenda:
NIPA personal
 saving rate 8.2 7.6 6.5 6.9 6.6 6.5
NPISH saving rate (1) ... ... ... ... ... ...

 1991 1992 1993 1994 1995 1996

Households ... 7.0 5.5 5.0 5.0 4.5
Alternative
 treatment for
 defined benefit
 pension plans 5.5 6.1 4.6 4.0 4.0 4.0
Capital gains
 taxes excluded 7.6 7.9 6.5 5.9 6.0 5.9
Consumer durable
 goods as investment 7.9 8.5 7.3 7.0 7.0 6.8
Addenda:
NIPA personal
 saving rate 7.0 7.3 5.8 5.2 5.2 4.9
NPISH saving rate (1) ... 3.7 3.1 2.5 3.0 4.0

 1997 1998 1999 2000 2001 2002

Households 4.0 4.9 2.7 2.5 2.7 3.9
Alternative
 treatment for
 defined benefit
 pension plans 3.8 4.7 2.7 2.9 2.9 3.4
Capital gains
 taxes excluded 5.8 6.5 4.5 4.5 3.7 4.2
Consumer durable
 goods as investment 6.7 7.9 6.3 6.1 5.7 6.5
Addenda:
NIPA personal
 saving rate 4.6 5.3 3.1 2.9 2.7 3.5
NPISH saving rate (1) 6.8 3.6 4.2 4.4 -0.5 -3.3

 2003 2004 2005 2006 2007 2008

Households 3.9 3.5 1.3 2.5 2.3 4.6
Alternative
 treatment for
 defined benefit
 pension plans 2.9 3.1 1.0 2.2 2.2 ...
Capital gains
 taxes excluded 4.0 4.1 2.4 3.5 3.3 ...
Consumer durable
 goods as investment 6.3 6.1 4.0 4.7 4.2 5.3
Addenda:
NIPA personal
 saving rate 3.5 3.4 1.4 2.4 2.1 4.1
NPISH saving rate (1) -4.2 -1.0 0.4 -1.4 -2.3 -5.0

 2009

Households 6.2
Alternative
 treatment for
 defined benefit
 pension plans ...
Capital gains
 taxes excluded ...
Consumer durable
 goods as investment 6.5
Addenda:
NIPA personal
 saving rate 5.9
NPISH saving rate (1) -2.9

(1.) As a percent of income of nonprofit institutions
serving households (NPISHs) plus receipts from sales. NIPAs
National income and product accounts

Table 2. National Saving, Investment, and Borrowing
[As a percent of national income]

 1985 1986 1987

Personal saving (with accrued wages) 6.9 6.4 5.4
Plus: Undistributed corporate profits 1.6 1.0 1.5
Equals: Net private saving 8.5 7.3 6.9

Plus: Net government saving -4.2 -4.5 -3.3
Equals: Net national saving 4.3 2.8 3.6

Plus: Consumption of fixed capital 13.7 13.9 13.8
Equals: Gross saving 17.9 16.7 17.4

Net saving plus statistical
discrepancy 7.4 6.2 5.9
Less: Net domestic investment 10.5 9.8 9.6
Less: Capital account transactions 0.0 0.0 0.0
Equals: Net lending (1) -3.1 -3.7 -3.7

 1988 1989 1990

Personal saving (with accrued wages) 5.7 5.5 5.5
Plus: Undistributed corporate profits 2.1 1.5 1.7
Equals: Net private saving 7.8 7.0 7.1

Plus: Net government saving -2.7 -2.4 -3.4
Equals: Net national saving 5.1 4.6 3.8

Plus: Consumption of fixed capital 13.5 13.6 13.7
Equals: Gross saving 18.6 18.2 17.4

Net saving plus statistical
discrepancy 6.2 6.8 6.1
Less: Net domestic investment 8.8 8.8 7.6
Less: Capital account transactions 0.0 0.0 0.1
Equals: Net lending (1) -2.6 -1.9 -1.6

 1991 1992 1993

Personal saving (with accrued wages) 6.0 6.0 5.0
Plus: Undistributed corporate profits 2.1 2.4 2.4
Equals: Net private saving 8.1 8.5 7.5

Plus: Net government saving -4.3 -5.5 -4.9
Equals: Net national saving 3.8 3.0 2.6

Plus: Consumption of fixed capital 13.9 13.5 13.4
Equals: Gross saving 17.7 16.5 16.1

Net saving plus statistical
discrepancy 5.9 5.4 5.5
Less: Net domestic investment 5.7 6.2 6.8
Less: Capital account transactions 0.1 0.0 0.0
Equals: Net lending (1) 0.0 -0.8 -1.4

 1994 1995 1996

Personal saving (with accrued wages) 4.7 4.6 4.1
Plus: Undistributed corporate profits 2.6 3.0 3.1
Equals: Net private saving 7.2 7.6 7.2

Plus: Net government saving -3.4 -3.0 -1.8
Equals: Net national saving 3.8 4.6 5.4

Plus: Consumption of fixed capital 13.3 13.3 13.2
Equals: Gross saving 17.0 17.9 18.6

Net saving plus statistical
discrepancy 6.2 6.2 6.6
Less: Net domestic investment 8.1 7.8 8.3
Less: Capital account transactions 0.0 0.0 0.0
Equals: Net lending (1) -1.9 -1.6 -1.7

 1997 1998 1999

Personal saving (with accrued wages) 3.7 4.3 2.5
Plus: Undistributed corporate profits 3.2 1.8 2.2
Equals: Net private saving 7.0 6.1 4.7

Plus: Net government saving -0.3 1.0 1.7
Equals: Net national saving 6.7 7.1 6.4

Plus: Consumption of fixed capital 13.0 20.9 13.1
Equals: Gross saving 19.7 28.0 19.5

Net saving plus statistical
discrepancy 7.4 7.0 6.5
Less: Net domestic investment 9.1 9.6 10.0
Less: Capital account transactions 0.0 0.0 0.1
Equals: Net lending (1) -1.8 -2.6 -3.5

 2000 2001 2002

Personal saving (with accrued wages) 2.4 2.2 3.0
Plus: Undistributed corporate profits 1.3 1.6 1.8
Equals: Net private saving 3.6 3.8 4.8

Plus: Net government saving 2.5 0.3 -3.3
Equals: Net national saving 6.2 4.1 1.6

Plus: Consumption of fixed capital 13.2 13.7 13.9
Equals: Gross saving 19.4 17.8 15.4

Net saving plus statistical
discrepancy 5.4 3.7 2.5
Less: Net domestic investment 10.0 7.9 7.3
Less: Capital account transactions 0.0 -0.1 0.0
Equals: Net lending (1) -4.6 -4.1 -4.8

 2003 2004 2005

Personal saving (with accrued wages) 3.1 2.7 1.2
Plus: Undistributed corporate profits 2.3 3.2 5.7
Equals: Net private saving 5.4 6.0 6.9

Plus: Net government saving -4.2 -3.7 -2.3
Equals: Net national saving 1.1 2.3 4.6

Plus: Consumption of fixed capital 13.8 13.6 13.7
Equals: Gross saving 14.9 15.9 18.2

Net saving plus statistical
discrepancy 2.2 2.7 2.5
Less: Net domestic investment 7.4 8.6 9.1
Less: Capital account transactions 0.0 0.0 -0.1
Equals: Net lending (1) -5.3 -5.9 -6.5

 2006 2007 2008

Personal saving (with accrued wages) 2.0 1.7 3.5
Plus: Undistributed corporate profits 5.0 3.6 1.5
Equals: Net private saving 7.0 5.3 5.0

Plus: Net government saving -1.3 -1.9 -5.3
Equals: Net national saving 5.7 3.4 -0.3

Plus: Consumption of fixed capital 13.8 14.3 14.7
Equals: Gross saving 19.5 17.7 14.4

Net saving plus statistical
discrepancy 2.4 2.2 0.6
Less: Net domestic investment 9.1 7.9 5.9
Less: Capital account transactions 0.0 0.0 0.0
Equals: Net lending (1) -6.7 -5.8 -5.4

 2009

Personal saving (with accrued wages) 5.4
Plus: Undistributed corporate profits 2.9
Equals: Net private saving 8.3

Plus: Net government saving -10.4
Equals: Net national saving -2.1

Plus: Consumption of fixed capital 15.2
Equals: Gross saving 13.1

Net saving plus statistical
discrepancy -1.2
Less: Net domestic investment 1.9
Less: Capital account transactions 0.0
Equals: Net lending (1) -3.1

(1.) Net lending is the negative of net borrowing