Personal Savings Has Fallen Off a Cliff
Will a slowdown in consumer spending follow?
The savings rate as a percentage of disposable personal income has come down to pre-pandemic levels. 6.3% is the lowest level since 2015. All the stimulus money and savings that U.S consumers saved up over the pandemic, has all been spent away.
Is the savings going to pay for discretionary goods or for the increased costs of everyday living expenses?
The biggest story in 2022 has been inflation and what it has done to the price of everything. If you question the price of something, you get the excuse of inflation. If you question the time to receive something, you get the excuse of the supply chain.
Here is where inflation has gone in the past year. February 2021: CPI 1.6% & Core CPI 1.2% vs February 2022: CPI 7.9% & Core CPI 6.4%
In monetary terms, $1,000 in February 2021 has the same buying power as $1,078.71 in February 2022 according to the CPI Inflation Calculator.
Monthly rents in the U.S. has continued its steady climb upward.
Mortgage rates have hit their highest levels since 2018.
We all know what energy costs to heat, cool and power your home have done. We’ve all seen what higher gasoline prices have done at the pump and food prices at the grocery store.
I think you get the point. Everything has gone up in price. It’s hard to find anything that hasn't spiked in price. At what point does this affect the U.S. consumer and spending start to slow down?
Most have now taken the vacations that they’ve had planned since before the pandemic. The concerts that had been delayed are finally being performed. All the pent-up demand we’ve heard about for two years has been happening.
Our big spending event was that we finished off our basement. That’s a one time event. All the costs that went into the construction and then filling it with furniture and decor happens once. We aren’t doing that again.
People don’t buy a new refrigerator, furniture, car, house, camper, or boat every year. Certain household items that have seen a pull ahead in purchases are only bought on average once every five to ten years.
A surge of buying for just about everything isn’t sustainable. The fall in the personal savings rate will show that. You have to remember that many categories that saw tremendous gains experienced a pull forward in purchases, fed by the stimulus and cheap money over the past two years.
The upcoming few months will show how deep the rising costs of everything have had on the U.S. consumers. The question for economists, analysts and companies is will they continue to spend, or will they slow down spending and spring a recession? Time and how much we spend will tell.
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