Americans continue to save at dismally low levels as
inflationary pressures hit their wallets.
The personal saving rate — the portion of disposable income
Americans devote to savings — was 5.4% as of May, according to a report from
the U.S. Bureau of Economic Analysis. Remaining below 6% for every month of
2022, the measure is far from the 7% to 9% seen over the previous decade.
Yet as savings rates soared beyond 10% and at times above
30% between April 2020 and March 2021, Americans accumulated up to $2.5
trillion in savings, according to the Brookings Institution, with much of the
funds deposited into checking and savings accounts. As the Consumer Price Index
(CPI) has surged year-over-year to 8.6%, households are now relying upon those
reserves to make ends meet.
“Most households have a cash cushion to navigate through the
very high inflation,” Moody’s Analytics Chief Economist Mark Zandi remarked,
per The Wall Street Journal. “This is allowing consumers to stay in the game.”
Americans, however, are by no means comfortable. As gas and
food prices increase at their highest paces in decades, inflation continues to
surpass nominal wage growth — leading to a 3% year-over-year drop in real wages
as of May.
The tighter budgets appear to be impacting the overall pool
of savings. Amid declines in disposable income, personal savings fell from
nearly $4 trillion in the first quarter of 2021 to slightly over $1 trillion in
the first quarter of 2022.
Meanwhile, the University of Michigan’s benchmark Survey of
Consumers reached its lowest level since 1952 in May. Nearly 70% of the United
States’ economic output hinges upon consumer spending — meaning that a drop in
consumer sentiment could signal a looming recession.
“Consumers across income, age, education, geographic region,
political affiliation, stockholding and homeownership status all posted large declines,”
Survey of Consumers Director Joanna Hsu said in a statement. “As higher prices
become harder to avoid, consumers may feel they have no choice but to adjust
their spending patterns, whether through substitution of goods or foregoing
purchases altogether. The speed and intensity at which these adjustments occur
will be critical for the trajectory of the economy.”
Indeed, recessionary fears are mounting as consumers and
businesses face cost pressures. The Federal Reserve Bank of Atlanta estimates that
the economy shrank at a 2.1% annualized pace in the second quarter of 2022 — a
development that would follow the economy contracting at a 1.5% pace in the
first quarter, meeting the technical definition of a recession.
The stock market has therefore seen its worst first half of
the year in over five decades, with the S&P 500 — which monitors the
performance of 500 large public companies — falling more than 21% since the
first day of 2022. As a series of selloffs characterized the month of June, investment
bank Morgan Stanley forecasted that the index could drop another 15% to 20%.
President Joe Biden, however, is more optimistic.
“You’ve got serious economists who warn of a recession next
year… What should Americans believe?” Associated Press reporter Josh Boak asked
Biden last month.
“They shouldn’t believe a warning. They should just say:
‘Let’s see. Let’s see, which is correct.’ And from my perspective, you talked
about a recession. First of all, it’s not inevitable,” Biden replied.
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