• Rajan Doering

The Savings Rate and GDP During Covid

By: The Quinnipiac University Economics Research Team, Jack French

Source: Data is Real GDP and Personal Savings Rate (PSAVERT) data collected from FRED.

This report looks at the US savings rate and GDP to gain insights into the movements of these key variables and stock markets during Covid, then uses these insights to look at CEE economies where we don’t have as good data yet.

Savings Rate Moves Opposite of GDP

Prior to this year, the personal savings rate in the US had topped ten percent only once in the last ten years. In March savings went up to 12.6% which was then immediately followed by a near vertical increase to 33.6% in April. The savings rate declined to 14.3% by September, but that is still roughly double above the average rate for the past decade. This spike came alongside a massive drop in real gross domestic product where the non-annualized growth rate fell to -9.0%. The relationship between savings and GDP in the short term should be inverse as people are spending less which lowers output. However, this is the first time in years that this sort of divergence has shown up in the US. During the ten year expansion leading up to the pandemic both savings and GDP growth fluctuated around a fairly flat trendline most of the time.


Source: Calculations are based on Real GDP and Personal Savings Rate (PSAVERT) data collected from FRED, S&P data from Yahoo Finance. Savings rate is shown monthly, S&P returns are monthly, and GDP is quarterly.

Stock Market Impact

At the beginning of March, the US stock market fell and GDP fell with it. As the savings rate skyrocketed and GDP started to tick up, the US S&P followed. The above graph is slightly off due to differences in the dates that the data are reported on, but the market recovery appears to track a GDP increase and a spike in savings very closely. This fits the idea that consumers are choosing between spending money on goods and services or putting their money into some form of investment. As less money was being spent on purchases, more money was going into asset markets. If demand for stocks is rising faster than supply, or falling more slowly than supply, prices will go up. However, if the savings rate stays really high, firm revenue will generally be weaker provided demand for their products is driven by consumers.


Source: Data are from Eurostat and can be found on DBnomics. GDP numbers are quarterly, chain linked volumes in percentage change compared to same period in the previous year. GDP is seasonally and calendar adjusted. Household consumption data is also in percentage change from same period in previous year and is seasonally and calendar adjusted.

CEE Comparison

The equivalent savings rate data for Central Europe is incomplete or not up to date, but the above graph shows some comparisons between CEE countries for similar data. GDP growth across CEE countries fell and total household consumption expenditure fell with it. Both variables fell more in the UK than in any of the four CEE countries shown, but the relationship between the two variables was very similar. A decline in income or an increase in savings as a percentage of income are reasons why consumption would fall, but it is not entirely clear which how much each contributed here. National income clearly fell as it did in the UK, US, and most of the world, but based on what the US data shows, personal savings rates may moved around a lot as well.

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