Americans save record amounts amid uncertain economic fate
‘People don’t know what the future holds,’ one economist says
While millions of people could lose most or all of the $600 bonus in their weekly unemployment benefits, threatening to slow consumer spending and the nation’s economic recovery, one thing could help cushion the blow: Americans have been saving lots of money during the COVID-19 crisis.
The savings rate – the portion of monthly income that households are socking away – hit a record 33.5% in April before edging down to a still outsized 19% in June, Commerce Department figures show. Before the pandemic, Americans were squirreling away an average 7.5% of income.
“We’ve never had this much savings,” said Tom Porcelli, chief economist of RBC Capital Markets. “It’s uncharted territory.”
From March through June, the latest data available, U.S. households banked an additional $916 billion of their income above pre-COVID levels, according to Moody’s Analytics, a stash that will top $1 trillion when July figures are included.
Some of the reserves already have been spent: Consumer spending rose a record 8.5% in May and a healthy 5.6% in June.
But with the economy largely shut down, little has been spent on travel, dining out, movies and other services. At the same time, households have benefited from stimulus checks of $1,200 for individuals and $2,400 for married couples.
The cash stockpile should help bolster consumer outlays and the economy as a congressional impasse over a new stimulus package threatens the weekly $600 federal unemployment bonus, which expired at the end of last month.
Late last week, President Donald Trump signed an executive order to provide jobless workers $300 a week and called on states to kick in another $100, but the move could face legal challenges.
The hefty cash reserves won’t help most of the tens of millions of workers who have lost their jobs amid the crisis, including many restaurant, hotel and retail employees. Such low-wage workers tend to spend the vast majority of their income, saving well under 5% in the first quarter, Moody’s figures show.
But higher-income households put away a much larger chunk of their earnings – about 15% in the first quarter and almost certainly a far higher share amid the pandemic. Likely benefiting from the biggest boost in savings are uppermiddle-income Americans who mostly have held onto their jobs and whose income thresholds were low enough to qualify for the stimulus checks.
Here’s the rub: With COVID-19 spikes across the South and West leading many states to pause or roll back plans to reopen businesses recently, Americans are worried about the course of the economy and aren’t in much of a spending mood.
“People are saving because they don’t know what the future holds,” said Moody’s Chief Economist Mark Zandi. “They’re likely to be concerned that their job is safe.”
Zandi doesn’t believe people will spend their cash hoards in earnest until “the pandemic is over,” likely after a vaccine is widely available, possibly sometime next year.