Today, we are pleased to present a guest contribution written by Valerio Ercolani, from the Directorate General for Economics, Statistics and Research at the Bank of Italy. The views expressed in this note represent that of the author and not necessarily reflect those of Bank of Italy.
Last months saw an unprecedented rise in the US saving rate. Most of the accumulated saving was undoubtedly generated by the social distancing and lockdown measures imposed by the government, however part of it could also have been driven by precautionary motives due to grim labor prospects. Some back-of-the-envelope calculations show that the dynamics of the unemployment rate alone can induce a large increase in (precautionary) saving for this year, which can sound an alarm for a new saving glut.
The economic effects of the Covid-19 outbreak have become manifest in official data. In the US, GDP contracted by 5% in Q1, at an annual rate, with service consumption contributing the most to the contraction. During the last three months, employment fell by roughly 19 million units with unemployment rate settling at almost 14% in May. In fact, the latter can be underestimated, for example, Hamilton (2020) shows, through some back-of-the-envelope calculations, that the actual unemployment rate could be even larger, around 20%. In April, the saving rate rose 20.3 percentage points (to 33%), the largest monthly increase since the 1960s (Figure 1). In May, it retreated to a still high 22.3%. Personal saving skyrocketed itself: it almost tripled from February, moving from roughly 1400 to 4100 billions of dollars.