Spending Collapses As Savings Rate Spikes
Market Crumbs | Jun 01, 2020 07:33AM ET
Things have undoubtedly been tough over the last few months as a result of the coronavirus. Between the tens of millions of job losses and mandatory stay-at-home orders, most Americans have been affected.
Between job losses, a lack of things to spend money on and general pessimism over the state of the economy, American spending has collapsed while savings have soared.
U.S. consumer spending dropped by a U.S. personal savings rate jumped to a record 33% in April, according to the U.S. Bureau of Economic Analysis. The savings rate was 12.7% in March when the effects of the coronavirus just started to take hold in the U.S.
The rate, which is the amount Americans save as a percentage of their disposable income, nearly doubled the previous record high of 17.3% in May 1975. April marked the first time the savings rate jumped above 15% since 1975, while it mostly remained in the 5% to 10% range throughout the last decade.
"There’s not much opportunity for many people to go out and spend money," senior fellow at Harvard Kennedy School Megan Greene said. "With shops all closed and everybody locked up, the 'shopportunities' have dried up. That speaks to a kind of demand shock."
Bank of America CEO Brian Moynihan said checking accounts with balances of less than $5,000 had 30% to 40% more money than they did three months ago. Moynihan said data from Bank of America (NYSE:BAC), which counts half of American households as customers, shows credit and debit card spending is down 5% to 10% in May after falling 30% in April.
"You’re starting to see the economy come out of the hole," Moynihan said. "You’re seeing us come out of the depths of where we were in April, and that’s good news."
While most of the country has relaxed stay-at-home orders, many people continue to remain at home. Furthermore, many of the Americans who have been laid off or placed on furlough still have yet to return to work as government assistance will soon begin to dry up.
h3 S&P 500Despite the stock market's strong rebound from the March low, many Americans haven't benefitted from it. These various factors could cause Americans to continue to be cautious with their spending and lead to an elevated savings rate going forward./h3
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