Trends in personal savings

I was looking at some St. Louis Federal Reserve data in FRED to illustrate the relation between personal savings and interest rates. The savings data (GPSAVE) are pretty noisy, so I did a boxcar smooth over 21 quarters (5 years more or less) and plotted the quarterly change against 3-Month Treasury Bill: Secondary Market Rate (TB3MS).

SavingsInterest

I didn’t expect that sudden shift around 1981, from a quarterly increase of about 2.4% pre-1981 to a 1.2% increase post-1982.

What I did expect was that the quarterly change would reflect a combination of inflation and increasing population. I didn’t expect either of those to jump in 1981 (spike in interest rate or not) but, hey, it’s a complex system.

Then, Greg Mankiw, author of the fine textbook I’m using in Intermediate Macroeconomics, pointed out that I was using nominal savings rather than real savings. That is, I didn’t adjust the total dollars by inflation. So I did that, using Personal Consumption Expenditures: Chain-type Price Index (PCECTPI) from FRED. Here’s what my graph looks like using real savings:

RealSavingsInterest

Now, no sudden drop in 1981, but a change in slope around 1984/1985. It looks like, leading up to 1984, real savings increased each quarter, but the amount it increased was going down by 0.0101% per quarter. After 1985, however, the amount that real savings increased started going up by 0.0023% each quarter. The post-1985 trend, by the way, is hardly conclusive – less than 14% confidence in that number. In fact, it could be zero – meaning that the real savings has increased at a constant rate since 1985. Even if that is the case, it shows that real savings increase by 0.53% per quarter, while the US population increases by about 0.18% per quarter, based on Census Bureau estimate NST-EST2012-06.

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