Another dangerous sign for the US economy: net savings have fallen into a negative zone!

Ryan McMaken, senior editor of the well-known economic research institution Mises Institute (Mises Institute), wrote that negative US net savings (savings adjusted for households, businesses, and government departments) are another warning of the recession. Furthermore, since the first quarter of 2023, US net savings as a share of GNI has been negative.

Looking back at the end of the 1940s, McMaken found that in the 1950s and early 1960s, during the post-war period of economic austerity, there was an overall upward trend in net savings.

However, in the late 1960s, in the “guns and butter” era (that is, the government faced the dilemma of whether to spend money on military spending or social welfare), net savings began to decline, and has maintained an overall downward trend since then, in line with the growing federal deficit.

Over the years, net savings have also been negative twice, during the financial crisis and the COVID-19 pandemic.

Generally speaking, in the early stages of a recession, net savings tend to drop sharply. As can be seen from the chart above, this has been the case for several recession cycles. There is a similar trend in gross savings as a percentage of GNI.

The current decline in US net savings to negative values may reflect some different trends. One fact is that the federal government continues to face larger deficits when tax revenues are weak as they are now.

But one thing is clear: since the fourth quarter of 2020, net savings have deteriorated rapidly, from 2.9% in that quarter to -0.7% in the third quarter of last year, and are still deep in negative territory.

Such a rapid decline almost always indicates that the US has either entered recession or is about to enter recession.