With inflation surging and the effects of the flu, the U.S. savers are under pressure.
The U.S. personal savings rate fell to 4.4% in April, the lowest since September 2008, according to data from the Commerce Department released Friday.
In a typical cycle, a drop in the saving rate would be a warning about the sustainability of spending, Wells Fargo economists, led by Tim Quinlan, wrote in a note published earlier this week.
Balance sheets are in such good shape, we see less cause for concern today. It is our baseline forecast for the saving rate to fall below its prior-cycle average of 7.2% through the end of 2023. The personal savings rate is one of the distorted data series that the government is trying to bolster the economy through the Covid-19 epidemic, and a decline is expected.
In April 2020, the savings rate hit a new record 33.8%, as government checks hit consumer bank accounts and the spread of Covid 19 kept many people at home and businesses closed.
The savings are under pressure, but economists say consumers are still sitting on a stock of unused savings worth trillions. Ian Shepherdson at Pantheon Macroeconomics said that April's decline in the savings rate was no big deal. The stock of excess savings is still $2.2 trillion and the rundown over the past three months has averaged only $41 B per month, Shepherdson notes. This can continue for a long time, but real incomes will start to rise in the second half of 2022, according to Quinlan's team at Wells Fargo. Americans have $2.3 trillion of excess savings or savings above and beyond what pre-pandemic trends show folks stocking away.
Wells Fargo noted that household net worth rose by 30% over the past two years, and households have an estimated $2.3 trillion not annualized on their balance sheets. The net worth of households in a better position than after past recessions is affected by this overall increase in net worth. There are reports from other retailers and strong signals from the travel sector that have allayed the fears of an imminent pullback in consumer spending. The demand environment continues to be strong with sales in June set to be better than what was seen in April and May, as stated by JetBlue JBLU to investors earlier this week.
As Dollar General DG and Dollar Tree DLTR suggested earlier this week, consumers are more intentional in where and how they spend money, especially when it comes to essentials like food and grocery items.
With the stock of savings sitting at record levels, economists believe that the rate of savings will decline as consumers run down the cash piles that have been accumulated during the epidemic.
In fact, we wouldn't be shocked if the saving rate fell into negative territory at some point, according to Quinlan's team. It has never happened before, but the backdrop has never looked like it does today. The personal savings rate is calculated as the difference between total disposable income and personal outlays. With income slowed, a low saving rate is highly likely. Myles Udland is senior markets editor at Yahoo Finance.