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In the coronavirus economy, consumers are saving their money

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Today the Federal Reserve released the Beige Book, a periodic summary of the national economy. The report noted that consumer spending is down in all districts, reflecting the economic effects of the COVID-19 outbreak.

One economic indicator that closely follows consumer spending is the velocity of money, which measures “how much money gets spent from person to businesses, and businesses to businesses,” said Kathy Bostjancic, chief U.S. financial economist at Oxford Economics.

With the uncertainty of the coronavirus outbreak, more Americans are saving their money instead of spending on goods and services, which boosts the larger economy and contributes to a rise in gross domestic product and inflation.

But with many businesses closed to consumers, the average household savings rate rose to more than 13% in March, up from 8% in February. As states allow businesses to reopen, consumer spending could slowly increase.

“After we’ve all been locked up, just going down to the local store seems like a big outing,” Bostjancic said. “There’s a big leap from that to, say, booking your holiday to Hawaii.”

To get back to the spending levels we saw before the COVID-19 outbreak, consumer confidence will need to drastically increase. According to Bostjancic, that won’t happen “for some period of time.”

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