Household savings rate vanishes…

Sharing is Caring!

The United States consumption figure seems robust. An 0.9 percent rise in personal spending in April looks good on paper, especially considering the challenges that the economy faces. This apparently strong figure is supporting an average consensus estimate for the second-quarter gross domestic product (GDP) of 3 percent, according to Blue Chip Financial Forecasts.

See also  I have never been more scared for my savings than after seeing this headline:

However, the Atlanta Fed GDP nowcast for the second quarter stands at a very low 1.9 percent. If this is confirmed, the United States economy may have delivered no growth in the first half of 2022 after the decline in the first quarter, narrowly avoiding a technical recession.

See also  Canadian Deputy PM wants to take your savings
The evidence of the slowdown is not just from temporary and external factors. Consumer and business confidence indicators present a less favorable environment than the expectations of an optimistic market consensus. According to the Focus Economics aggregate of estimates, the United States economy should grow a healthy 3.6 percent in 2022, helped by very strong third and fourth quarters, at 4.9 percent and 5.5 percent growth, respectively. The main driver of this surprisingly resilient trend is the unstoppable consumption estimates. However, there are important clouds on the horizon for the American consumer.

We cannot forget that consumer figures have been relatively solid, but at the same time, there has been a collapse in saving, with the personal saving rate falling from 8.7 percent in December to a fourteen-year low of only 4.4 percent in April.

We are primarily funded by readers. Please subscribe and donate to support us!

The United States personal saving rate is now 3.3 percent below its prepandemic level, and in early May, the University of Michigan consumer confidence index fell from 65.2 to an eleven-year low of 59.1, deep into recessionary risk territory.

The plummeting saving rate is deeply concerning. It proves that consumers are suffering from elevated inflation as real wages remain in negative territory. From April 2021 to April 2022, seasonally adjusted real average hourly earnings decreased 2.3 percent, according to the Bureau of Labor Statistics.

Put these two figures together—real average earnings down 2.3 percent and the household saving rate almost halved. Families are struggling, wages are dissolved by inflation and savings are being wiped out. Consumer credit card debt is almost at all-time highs. Balances rose to $841 billion in the first three months of 2022, according to data from the Federal Reserve Bank of New York.


Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.