Saving has come back in the US.  After dropping to 1%, the saving rate is now close to 6%.  In the latest Economic Letter from the Federal Reserve Bank of San Francisco, Reuven Glick and Kevin J. Lansing look at the relationship between the saving rate and availability of household credit.  And they find a very strong correlation. 

To explain movements in the saving rate over time, we construct a simple empirical model that uses data from the first quarter of 1966 through the third quarter of 2010. We perform a regression, a statistical exercise in which we look at the relationship between the personal saving rate and two contemporaneous explanatory variables: the ratio of household net worth to disposable income, shown in Figure 1, and our constructed measure of credit availability, shown in Figure 3 (you can find Figures 1 and 3 here). The first variable is based on the standard life-cycle model of net worth and saving. The second variable is intended to capture shifts in credit available to U.S. households that affect saving behavior outside the standard net worth channel.

Figure 4 plots the actual saving rate versus the corresponding value fitted to the data from our empirical model incorporating credit availability. The model explains 90% of the variance of the saving rate since 1966. Both explanatory variables are statistically significant in helping explain movements in the saving

rate. Rising net worth and easier credit availability both correlate with lower saving rates, which is consistent with the broad patterns shown in Figures 1 and 3. Similar results are obtained when we omit the credit availability variable but account for the separate influence of the household asset and debt ratios on the saving rate, rather than subtracting the two ratios to form a single net worth variable. This result reinforces the notion that changes in the household debt ratio tend to reflect changes in credit availability.

For comparison, Figure 4 also plots the fitted value from a standard empirical model that employs the net worth ratio as the only explanatory variable. The standard model explains only 73% of the variance of the saving rate, considerably less than our empirical model that includes the credit availability variable. Moreover, the model incorporating credit availability does a much better job of reproducing movements in the saving rate that have occurred over the past 10 years, when lending industry changes have been particularly dramatic.

Read Consumers and the Economy, Part I: Household Credit and Personal Saving here.