The personal saving rate has rebounded to a range not witnessed in 15 years while core deposit growth has tailed off, but this should be no surprise.
The saving rate, which measures saving (or income less outlays) as a percentage of income, has typically been disconnected from deposit trends (see charts).
Year-over-year growth in inflation-adjusted household deposits was relatively strong during the final three quarters of the recession, which ended in the middle of last year. This performance came amid a climb in the saving rate that began in 2008.
But over the long haul, deposits have been pulled along in debt's train, though at a lagging pace, as households borrowed ever larger sums and funds spread throughout the system. During the middle of the decade, when saving rates were at record lows, deposits continued to grow at a relatively healthy clip.
Now, after collapses in home prices and the value of stock portfolios, households are laboring to repair their balance sheets, and they are trimming debt.
In a Sept. 20 report, Aneta Markowska, an economist at Societe Generale AG, wrote that the saving rate was being tugged toward 7% to 8%, compared to an estimate of 6.1% for the second quarter. (The second quarter figure has since been revised to 5.9%.) That range is indicated by its historical relationship to the ratio of net worth to disposable income, which she highlighted in a chart (see second chart) and which dropped precipitously during the downturn but has recovered some of the lost ground in recent quarters.
Markowska noted the government's steps to help sustain spending, including the engineering of low interest rates that have supported asset prices. "The process of reducing debt levels will take years," she argued. However, though eventual tax increases and higher interest rates are likely to act as drags, pressure from the shift to greater frugality should ease since much of the saving adjustment has apparently been accomplished.
Nevertheless, the stage may be set for another phase of slow total deposit growth amid higher household saving.
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