The final release of data for the 4th quarter 2010 US GDP showed the highly significant trend that US savings fell as a percentage of US GDP – see Figure 1. The drop for one quarter was entirely marginal – from 11.74 per cent of GDP to 11.71 per cent. However the significance is that US savings are continuing a long term trend to fall as a percentage of its economy.
This is in contradiction to the analysis that the effect of the financial crisis would be a ‘rebalancing’ of the US economy through a rise in its savings rates.
The new decline was due to a fall in the US household savings rate – which has now dropped from its recent peak of 5.7 per cent of GDP in the 2nd quarter of 2009 to 4.3 per cent in 4th quarter 2010. Over the same period US net government dissaving fell from 9.8 per cent of GDP to 8.7 per cent.
This trend to a decline in US saving will limit the potential for a recovery in US investment and therefore growth. Unless there is an increase in foreign financing, via an increase in the US balance of payments deficit, i.e. an increase in global imbalances, US investment will continue to be constrained by the declining domestic savings rate.
US economic recovery is therefore likely to continue to be lower than in previous post-World War II business cycles.