Economy: Savings soar as Americans stay home
Despite the pandemic’s economic devastation, “Americans are saving more and paying off debts,” said Stacy Cowley in The New York Times. People aren’t dining out or attending concerts or ball games as frequently, and many have canceled their gym memberships. At the same time, “mortgage lenders, student loan collectors, and other creditors offered struggling borrowers a break on payments.” The result has been a soaring personal savings rate—the share of income left after taxes and expenses. Hovering a little over 7 percent before the pandemic, it hit a record 33.6 percent in April. At 14.3 percent in September, it was still close to double the pre-pandemic rate. Even “pawnshops and payday lenders, where business tends to boom during downturns, have been unexpectedly slow.”
The sudden embrace of savings may turn into a long-term change, said Shirley Leung and Larry Edelman in The Boston Globe. There are probably many people like Melissa James, a 31-year-old diversity consultant in the Boston area who used to “grab a grande Starbucks iced caramel macchiato and order lunch from Sweetgreen” every day at work. Now she estimates she’s saving $2,000 a month just by working at home and learning to cook. A Boston hair salon owner, Pedro Aguirre, “has saved so much by eating at home and eliminating Uber trips that he has paid off about $12,000 in credit-card debt.” Even after a vaccine, he says, his spendthrift days are over. Banks are getting mixed signals, said Peter Rudegeair in The Wall Street Journal. Top credit-card issuers Capital One, Discover, and Synchrony Financial all reported last week that spending is up from a year ago as cardholders catch up on deferred purchases. Still, credit-card balances are falling, “suggesting that consumers are willing and able to get out from under existing debt.”
The extraordinary savings rate creates a puzzle for policymakers, said Karen Ho in Qz.com. Many Americans were able to keep their $1,200-per-adult stimulus checks in the bank, or use them to pay down debt. A study by economists at the New York Fed found that “more than 70 percent of a potential $1,500 second payment would be saved or put toward debt payments rather than on buying goods.” But there’s one big exception to the trend of rising savings, said Denitsa Tsekova in Yahoo.com: the 22 million Americans who are unemployed. Thanks to an extra $600 per week in expanded unemployment benefits, some of them “got more money from unemployment than their old wages.” But Congress let that supplement expire in August, and the jobless are facing a desperate situation as their savings quickly dwindle.