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According to government statistics, Americans are no longer putting money into their savings accounts like they used to. That's one reason consumer spending has been so resilient since the economy emerged from the pandemic trough, despite high inflation and elevated interest rates. But when saving slows (or stops), it leaves households, particularly low-income ones, in a vulnerable position, economists say.
The personal savings rate fell to 3.6% in February, its lowest level in more than a year, and has been below levels in the decade before 2022 in recent years.
This could just be a sequel a long-term trend: Americans have “consistently saved less after each recession than in the previous cycle,” according to an analysis by Wells Fargo economists released Thursday.
The only exception in the last 50 years in which people actually saved more than in the previous cycle was the economic expansion following the Great Recession, which spanned from 2009 to 2020, the analysis says. This reflected the sheer economic pain felt by Americans during the 2008 downturn.
The dynamics at play now are completely different. Americans' coffers swelled due to pandemic-related stimulus measures and a lack of spending during the shutdowns. The robust labor market in recent years has also supported household finances. Taken together, this may have resulted in a “structurally lower savings rate,” according to the report.
Bell previously spoke with Shannon Seery Grein, an economist at Wells Fargo and one of the report's authors, about what recent austerity means for the U.S. economy.
This interview has been edited for length and clarity.
What does the lower savings rate say about the US consumer today?
Shannon Seery Grein: The savings rate itself captures this change in behavior that will continue until an event or shock occurs that causes consumers to change their behavior. Households continue to spend at such high levels and one reason for this is the lower savings rate. There is simply no sign of a return to pre-Covid levels, which is not shocking when you look at the history of the savings rate. There was both a structural change that has been underway for a long time and a cyclical behavioral change that occurred in the middle of the pandemic. That will help support spending this year.
Why could this development possibly be a bad thing?
It is somewhat worrying that households are no longer saving as much as they did in the past because, technically speaking, they no longer have as much available in the event of a downturn or a shock that hits the household sector. I think that makes them more financially vulnerable. although it represents some strength for the economy in the short term. According to data from Moody's Analytics, your lower-income consumers have negative savings, meaning they spend more than they bring in each month. This may be because they have taken out loans or simply have not purchased assets. This is unique to this cycle and only makes this group more vulnerable to a downturn because it makes them much more dependent on their income.
What does all this say about consumer psyche?
Households are simply not changing their spending habits, but they have changed everything else. During the pandemic we were all locked in our houses and not much was being spent on services, so this forced saving happened. Once the pandemic passed, households were able to spend a lot of that liquidity, particularly on services, and so they spent at these elevated rates and that continues to be the case. Even as households become more dependent on their income, there has been a mental shift where they change everything to suit their spending habits. They're saving less each month, they're withdrawing money from other assets like retirement accounts, we've seen an increase in buy now, pay later, we've seen another increase in credit card usage, and so on. I think households will continue to spend as much as before.
My colleague Matt Egan reports that worker burnout is such a big problem that some bosses are considering shortening the length of the workweek.
Nearly a third (30%) of large U.S. companies are considering new work shifts such as four-day or four-and-a-half day workweeks, according to a KPMG survey of CEOs released this week.
The results show that in a red-hot job market where many employees feel overworked and underpaid, some leaders are looking for ways to attract and retain talent.
“We're all working to figure out what's optimal and we'll continue to experiment and pivot,” Paul Knopp, chairman and CEO of KPMG US, said in an interview with CNN. Many employees say they would like a shorter work week.
According to a Gallup poll released in November, a whopping 77% of U.S. workers said a four-day, 40-hour work week would have a positive impact on their well-being. This included 46% who said it would have an “extremely positive” effect.
The good news for workers is that some studies of four-day workweeks in the United States and Europe have found positive results for worker well-being and productivity.
Read more here.
Monday: Earnings from Goldman Sachs, Charles Schwab and M&T Bank. The US Department of Commerce releases March retail sales figures and reports corporate inventories in February. Fed officials Lorie Logan and Mary Daly deliver remarks. The National Association of Home Builders releases its NAHB/Wells Fargo Housing Market Index for April. China's National Bureau of Statistics releases March figures on industrial production, retail sales, fixed investment, unemployment and gross domestic product for the first quarter.
Tuesday: Income from UnitedHealth, Johnson & Johnson, Bank of America, Morgan Stanley, PNC, The Bank of New York Mellon, Northern Trust and United Airlines. The US Department of Commerce releases March data on housing starts and building permits. The Federal Reserve releases March industrial production figures. Statistics Canada releases inflation data for March. Fed Chairman Jerome Powell takes part in a discussion.
Wednesday: Revenue from Abbott Laboratories, Discover, Equifax and Citizens. Cleveland Fed President Loretta Mester delivers remarks.
Thursday: Earnings from Taiwan Semiconductor Manufacturing, Netflix, Blackstone and Alaska Air. The National Association of Realtors reports existing home sales in March. Fed officials John Williams and Raphael Bostic deliver remarks. The U.S. Department of Labor reports the number of initial jobless claims for the week ending April 13.
Friday: Income from Procter & Gamble and American Express. Chicago Fed President Austan Goolsbee gives a speech.
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