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Does the US Corporate Saving Rate Portend a Lower Unemployment Rate?

An interesting thing happened in Q4 2011: the corporate saving rate declined following two quarters of gains. Nominal net saving by the domestic business sector fell 3%, while nominal gross fixed investment and inventories surged 6% – the two pushed the saving rate down nearly 40 bps to 2.94% of GDP. The corporate saving rate (gross saving less gross investment) has been on a downward trend since the end of 2009, a welcomed trend by the labor market.

There’s a very strong correlation between the corporate saving rate and the unemployment rate, 80% according to a simple bivariate OLS regression. I’ve argued in the past that there is some causation to this relationship – but that’s not the point of this post. The point here is that the trend in corporate saving has fallen sufficiently to portend some material declines in the unemployment rate in coming quarters….ALL ELSE EQUAL. For example, a simple bivariate regression would forecast a 7.5% unemployment rate if the corporate saving rate falls another 30 bps to 2.6%.

The all else equal is important. The primary driver of this quarter’s decline in the corporate saving rate was the 6% increase in nominal investment spending, the largest quarterly gain since 2010 Q2. Amid relatively weak manufacturing orders and the expiration of the depreciation allowance, I expect that this momentum is unlikely to be matched in coming quarters. Will firms start drawing down nominal saving to finance new hires?

Better put: will the unemployment rate drop to meet the saving rate? Or will the saving rate rise to meet the unemployment rate?

Rebecca Wilder

2 Responses to “Does the US Corporate Saving Rate Portend a Lower Unemployment Rate?”

AegeanMarch 15th, 2012 at 8:42 am

unemployment will rise, corporate earnings will drop, private savings will drop (since people will be spending from their savings to pay bills) and theres going to be social uprising

ajwMarch 17th, 2012 at 11:35 pm

Sure doubt the corporate savings rate will rise any time in the near future. It would take another "bomb" like 2007-2011 to do that. The spending by individuals has increased significantly in the last 4 months, since before Christmas, and should continue even with the gas prices as they are. People and corporations feel a lot "safer" so don't hold on to dollars.

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Dr Dan Steinbock is a recognized expert of the multipolar world. He focuses on international business, international relations, investment and risk among the major advanced economies (G7) and large emerging economies (BRICS and beyond). In addition to his advisory activities (www.differencegroup.net), he is affiliated with major US universities as well as international think-tanks, such as India China and America Institute (USA), Shanghai Institutes for International Studies (China) and EU Center (Singapore).

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