Chris Surran and Evans Alison
Analyzing GDP growth year over year and Average Personal Savings Rate data yields interesting results. In general, GDP and personal savings rate seem to have an inverse relationship. However, GDP seems to take a quarter or two to react to this increase or decrease in personal savings. This relationship is very intuitive. As consumers start to save more money they begin to consume less. Since consumption is a major part of GDP, it makes sense that GDP growth would weaken in a period of increased savings. Conversely, in a period of decreased savings general consumption will increase, which in turn will lead to an increase in total GDP.
Since Q1 2016, the Personal Savings Rate has decreased from 5.7% to 2.6%. In the same period, GDP’s year over year growth has grown from 2.52% to 4.12%. This data seems to comply with the inverse relationship discussed above. Furthermore, similar trends can be found throughout the data set.
This relationship yields an interesting relationship. What is the optimal personal savings rate?