Americans Drawing Down on Savings is a Red Flag

As the United States celebrated its 246th birthday yesterday, the self-evident truth of today is that we are now forecasting an on-paper recession as the US economy is project to have a second quarter of negative growth.  While the labor market is strong, wages are now having trouble keeping pace with inflation, capital availability is declining amid a turbulent stock market as the Federal Reserve has shifted into a pattern of aggressive monetary tightening.  Americans are now starting to dip into the huge pile of savings they accumulated over the first two years of the pandemic.

From the start of the pandemic to the end of 2021, U.S. households built up $2.7 trillion in extra savings, according to Moody’s Analytics. Covid-19 lockdowns kept people at home with nowhere to spend money, and three rounds of stimulus payments boosted their incomes. Now, with inflation at its highest point in decades and wage gains trailing behind, Americans are turning to that stash to cover costs.

The personal saving rate, a measure of how much money people have left over after spending and taxes, reached 5.4% in May. That figure is below the average of the last decade and far below the record of 34% in April 2020, according to the Bureau of Economic Analysis. Families have tapped about $114 billions of their pandemic savings so far, according to Moody’s Analytics and government data.

Source: Wall Street Journal