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Since March 2020, Americans have saved $2.5 trillion more than they normally would have, thanks to government stimulus payments, rising wages, and the COVID-related shutdown of stores and entertainment venues, Yahoo! News reported.
Now that the COVID War has largely ended and consumers can spend again, some of that $2.5 trillion has begun to flow back into the economy as consumers buy everything from new wardrobes to yoga classes, even though a range of goods are in short supply and cost more than they used to.
The U.S. spending spree is not only fueling inflation at a rate not seen in 40 years; it also is slashing the savings rate.
In April, the personal savings rate fell to 4.4 percent of income, compared to a high of 14 percent during the height of the COVID War.
The rate is half of what it was in December and a third of that a year earlier.
Many households are no longer saving, but using past savings to pay for current purchases and expenses as the cost of living keeps rising faster than salaries and wages can grow, Yahoo! reported.
The government’s COVID-era “fiscal stimulation is still in the pockets of consumers,” JP Morgan Chase CEO Jamie Dimon said last week at the Bernstein Annual Strategic Decisions Conference.
“They’re spending it, and they’re spending at very strong levels,” he noted.
At the current rate, consumers could have only six to nine months of additional spending power left, he said.
Dan Shulman agreed, saying at the World Economic Forum last month that Americans are spending their cash cushions so quickly that those cushions could go flat by the end of this year.
“We’re already seeing a reduction in spending at lower income levels for sure, and it’s moving up to middle income right now,” he warned.
More than 80 percent of U.S. shoppers expect to reduce their purchases over the next three to six months, a recent NDP survey found, noting that consumers bought 6 percent fewer items during this year’s first quarter than they did during the same period in 2021.
Reductions in spending have crimped earnings of Target, Walmart, and other retailers, as we noted in “Major Retailers Take a Drubbing” (24 May 2022).
However, airlines and hotels report strong bookings for the summer months, perhaps a sign that consumers are prioritizing the purchases of services over goods, a trend we report in this issue in “China’s Exports Fall as World Shifts Spending Back to Services.”
Because consumer spending supports as much as 70 percent of the U.S. economy, any reduction will ripple through the jobs, financial, and investment markets as well.
TREND FORECAST: Once upon a time, back in the 1970s before America’s middle class began to shrink and the Bigs got Bigger, there was a slogan: “Shop Until I Drop.”
It was a time when malls were popping up across the nation and shopping mania was part of the culture.
While consumer spending accounts for 70 percent of America’s Gross Domestic Product, those free spending days are long gone.
Yet, Americans’ compulsion to spend is a key factor driving inflation.
In a world of shortages that will linger into the future, prices are unlikely to fall until consumers pare back their buying habits. The trend of consumers to spend less, which we report in “Retailers and Manufacturers Whack Jobs, Leisure Venues Hire” in this issue, is under way.
The trend will be somewhat masked through the summer as consumers spend on leisure and services while trimming purchases of merchandise, especially big-ticket items.
The trend will become more obvious after Labor Day when summer fun is over and continue until inflation falls significantly below its current level.