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.
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.
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.
The savings balance situation looks shaky if we compare it to the post-Great Recession trend (straight red line). It looks less worrisome if we look at it in terms of the pre-Great Recession trend (straight blue line).
Status: Given recent history, it is understandable that some consumers are calling the current economic situation difficult. It had been widely accepted that savings would change following the Great Recession; millennials had never been through a recession, and they were trending toward being better savers. Savings are still okay from the longer-term perspective, but if people are basing their perceptions on a recency bias, the current level of savings could be a detriment to seeing Retail Sales accelerate.
We frequently check the Job Openings Per Unemployed Person data from the US Census Bureau. As of July, the latest data, that number was at 1.1 Openings. Put very simply, there is still a little more than one job opening for every unemployed person.
Status: Solid.
The above metrics suggest consumers who are working are in reasonable, though not tip-top, shape. For further insight, we can look at their actions. While US Total Retail Sales data suggests that consumers are still spending, Retail Sales are up just 2.3% over the last three months versus one year ago. That 2.3% increase is not covering the inflation rate. The seasonal rising trend is the weakest in 10 years.
There is cause to be concerned about consumer viability heading into the fourth quarter of 2024 and early 2025. However, consumers are still handling debt loads well, as evidenced by delinquency rates, and they do not need to fear for their jobs in most cases.
Conditions could be worse. We think the current balance suggests ongoing sluggishness in the economy but not an outright slip into recession.
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