30 Jan COTW: Personal Savings
- During the COVID-19 pandemic, U.S. consumers accumulated more than $2 trillion in excess household savings, enabling them to spend and to continue spending even as inflation reached decade-high levels. In April 2020, personal saving rates reached an all time high of 33%. However, since then, it has steadily declined, reaching 2.4% in September 2022—the lowest levels since 2005. It slowly started ticking up after September, reaching 3.4% in December, albeit still well below the historical average of 8.9%.
- After more than two years of sustained elevated levels of spending, consumers may be starting to slow down. Consumer spending declined for two consecutive months, in November and December. Since 1959, spending has only ever declined over this peak holiday spending season three times—in 2001, 2008, and 2022.
- Evidence suggests that consumers may run down excess savings before the end of this year. Assuming a pre-pandemic spending rate and a savings rate in line with the most recent 3 months, our estimates show that consumers will run out of excess savings by the third quarter of 2023. However, if the recent slowdown in spending continues, it may enable consumers to stretch excess savings into 2024.
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