U.S. savings rate at lowest level since 2008 — why economists aren’t worried

U.S. savers are under pressure as inflation soars and pandemic-related stimulus is withdrawn.

april, usa Personal savings rate falls to 4.4%That was the lowest level since September 2008, according to data released by the U.S. Commerce Department on Friday.

“In a typical cycle, a sharp decline in the savings rate would be a warning sign for the sustainability of spending,” Wells Fargo economists, led by Tim Quinlan, wrote in a report earlier this week. .”

“With the balance sheet in such good shape, we are seeing fewer concerns today. In fact, by the end of 2023, the savings rate will actually be lower than the previous cycle’s average of 7.2%, which is actually our baseline forecast .”

The personal savings rate is the most distorted data series in the government’s efforts to support the economy through the Covid-19 pandemic and is expected to fall.

As stimulus has dried up, the effects of inflation and pandemic-related restrictions have faded, consumers have returned to normal habits, and personal savings rates have fallen.  (Source: Fred)

As stimulus has dried up, the effects of inflation and pandemic-related restrictions have faded, consumers have returned to normal habits, and personal savings rates have fallen. (Source: Fred)

The savings rate hit a record 33.8% in April 2020 as government checks hit consumer bank accounts and the spread of Covid-19 shut many people at home and businesses.

So although grade Savings are under pressure, with economists estimating that consumers still hold trillions of dollars worth of unused savings. That’s why Ian Shepherdson of Pantheon Macroeconomics called the April drop in the savings rate “no big deal”.

“Excess savings stock remains at $2.2 [trillion]The average per month over the past three months has only been $41B,” Shepherdson noted. “It could go on for a long time, but it’s not necessary because real revenue will start to rise again in the second half of the year. [of 2022]. “

Quinlan’s team at Wells Fargo recently estimated that U.S. consumers have about $2.3 trillion in “excess savings,” or savings beyond what pre-pandemic trends suggest people are hoarding.

Wells Fargo notes: “Households have an estimated $2.3 trillion accumulated on their balance sheets (not on an annualized basis), and household net worth has grown by about 30% over the past two years through the fourth quarter. Wealth percentile, making households financially better off than in past post-recessions.”

During the pandemic, consumers saved more than $2 trillion as stimulus rolled out and consumers stayed at home. Today, that money is flowing back into the economy.  (Source: Wells Fargo)

During the pandemic, consumers saved more than $2 trillion as stimulus rolled out and consumers stayed at home. Today, that money is flowing back into the economy. (Source: Wells Fargo)

Earlier this month, Walmart’s earnings report (WMT) and target (TGT) spooked investors, Slowing sales and bloated inventories Among these retail giants, perhaps a hint of a rapidly eroding consumer environment.

Subsequent reports from other retailers and Strong signal from tourismHowever, some fears of an imminent pullback in consumer spending have allayed. As JetBlue Airways (JBLU) told investors earlier this week that “the demand environment continues to be strong” and that June sales will be “significantly better” than April and May.

Meanwhile, discount retailers like Dollar General (dangerous goods) and Dollar Tree (DLTR) suggested earlier this weekconsumers have become more “conscious” about where and how they spend their money — especially when it comes to necessities like food and groceries.

With the stock of savings reaching record levels, economists also expect savings rates to continue to decline as the cash reserves that consumers have built up during the pandemic dry up.

“In fact, if the savings rate falls to negative Territory,” Quinlan’s team said. “This has never happened before, but neither has the context. The calculation of the personal saving rate is simply the difference between total disposable personal income minus personal spending. With incomes slowing, a low savings rate is not only possible, but likely. “

Miles Udland is a senior market editor at Yahoo Finance.follow him @MylesUdland

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