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by Bob Veres with Insider Information
One of the strangest statistics during the current pandemic is the remarkable change in the U.S. savings rate.
Americans—and perhaps people everywhere—tend to save more when they feel like the future is uncertain. As you can see from the chart, the U.S. personal savings rate (the aggregate ratio of personal saving to personal income) was well within normal bounds, running somewhere between 6.5% and 8% from June 2015 right up until COVID-19 started ramping up in March of this year. According to the U.S. Bureau of Economic Analysis, Americans responded to the threat by saving a remarkable 33.7% of their income in April, and the savings rate has remained above 17% since then.
A second chart, showing longer-term data, makes the recent spike even more dramatic—basically like nothing the U.S. has ever seen before. As you might expect, during the spike, consumer spending fell 12.6%, and a Harvard-based research group found that higher-income Americans were responsible for most of this decline. Interestingly, past spending cuts during past recessions tended to impact costly items like cars and homes. Today, spending has fallen most on services that require in-person interaction, like restaurants and hair salons.
Not everybody thinks a higher savings rate is good news. Consumer spending accounts for almost 70% of the U.S. economy, so any decline in consumption could pose a risk to the U.S. economy’s recovery. While saving is an essential part of a balanced financial plan, spending is a part of a balanced economy. We look forward to gaining back confidence in normal everyday spending without such a heavyweight of apprehension.
If you wish to discuss your approach to saving, please give us a call.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendation for any individual. Where applicable, all data and information has been gathered from sources believed to be accurate such as the internet, non-affiliated 3rd parties, news articles and professional subscriptions but this information is not warranted to be correct, complete or true.