Source: ITR Economics – September 19, 2024
Consumers are handling their debt loads well, but will they be able to thrive on saved income in this sluggish macroeconomy?
As the macroeconomy continues its relative stagnation this year, with US Industrial Production trending flat and US Real GDP growth slowing, some consumers will be relying on a cushion of saved income to see them through. Will it be enough? We will see what the data says.
The Cushion
- Savings Rate
US Personal Savings as a Percentage of Disposable Income, also known as the Savings Rate, is at 2.9%, the lowest it has been since the Great Recession. Furthermore, the Savings Rate is 4.0 percentage points below the trailing 10-year average of 6.9%.
That 10-year-average comparison appears unnerving. One reason for that is the historically high Savings Rates posted in the thick of COVID. The 32.0% of income Americans saved in April 2020 was nearly twice the previous record-high Savings Rate (posted in 1975). With consumers saving such an unprecedented proportion of their income during COVID, it makes sense that they would be saving significantly less now.
The average Savings Rate post-Great Depression and pre-COVID was 6.2%, indicating that the current rate is about half of what was recently “normal.”
Status: The Savings Rate trend is worrisome and suggests that the consumer is running low on reserve funds if they are needed.
- Real Cumulative Savings
At ITR Economics, we calculated an estimated personal savings balance for the US using data from the Bureau of Economic Analysis. From there, we deflated the dataset to create a picture of “real” savings. The chart shows that the savings balance fell sharply in 2022 and has been flat since.