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As the COVID-19 lockdown took hold, savings rates spiked

Justin Ho Jul 31, 2020
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A shuttered movie theater in Los Angeles. As people are unable to spend money on outings like movies and restaurants, the savings rate has climbed. Mario Tama/Getty Images
COVID-19

As the COVID-19 lockdown took hold, savings rates spiked

Justin Ho Jul 31, 2020
Heard on:
A shuttered movie theater in Los Angeles. As people are unable to spend money on outings like movies and restaurants, the savings rate has climbed. Mario Tama/Getty Images
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Friday’s consumer spending report shows people saved 19% of their disposable income in June — that’s down a bit from April, but way up from before the crisis. And Thursday, the Commerce Department’s gross domestic product report found that the savings rate rose to over 25% in the entire second quarter.

Savings can serve as a buffer in case of financial emergency. But every dollar saved is a dollar that’s not spent in an economy that relies on consumer spending.

The higher savings rates are a sign that the government’s relief efforts have boosted many people’s incomes.

Jay Bryson, managing director and chief economist for Wells Fargo’s Corporate and Investment Bank, said savings rates spiked in April.

“Because you had those $1,200 checks that many people received, as well as the enhanced unemployment benefits — $600 a week,” Bryson said.

And with the economy shut down, people have had fewer places to spend their money, according to Randy Frederick, vice president of trading and derivatives with the Schwab Center for Financial Research.

“That could be going out to a restaurant, going to the movies, going to a sporting event, those sorts of things,” he said.

Those activities come under the category of services. Seth Carpenter, chief U.S. economist at UBS, said spending on services continues to be low.

He said there’s a reason for that.

“The continued shortfall in services expenditures almost surely reflects the spending patterns of the middle and upper end of the income distribution,” Carpenter said.

It’s usually better-off people who spend money on dining out and sports games. With those venues closed, savings rates have jumped — partly because many of those people took their relief checks and just stashed them away.

The service sector is a big employer. So less spending there means less employment.

“And less employment means less spending overall in the economy, and it can have that vicious cycle component to it as well,” Carpenter said.

Looking forward, he said it’s hard to predict where saving and spending rates are headed. There are many variables, like how long the country will be in lockdown mode, and how long will the government continue to provide relief for the economy.

COVID-19 Economy FAQs

So what’s up with “Zoom fatigue”?

It’s a real thing. The science backs it up — there’s new research from Stanford University. So why is it that the technology can be so draining? Jeremy Bailenson with Stanford’s Virtual Human Interaction Lab puts it this way: “It’s like being in an elevator where everyone in the elevator stopped and looked right at us for the entire elevator ride at close-up.” Bailenson said turning off self-view and shrinking down the video window can make interactions feel more natural and less emotionally taxing.

How are Americans spending their money these days?

Economists are predicting that pent-up demand for certain goods and services is going to burst out all over as more people get vaccinated. A lot of people had to drastically change their spending in the pandemic because they lost jobs or had their hours cut. But at the same time, most consumers “are still feeling secure or optimistic about their finances,” according to Candace Corlett, president of WSL Strategic Retail, which regularly surveys shoppers. A lot of people enjoy browsing in stores, especially after months of forced online shopping. And another area expecting a post-pandemic boost: travel.

What happened to all of the hazard pay essential workers were getting at the beginning of the pandemic?

Almost a year ago, when the pandemic began, essential workers were hailed as heroes. Back then, many companies gave hazard pay, an extra $2 or so per hour, for coming in to work. That quietly went away for most of them last summer. Without federal action, it’s mostly been up to local governments to create programs and mandates. They’ve helped compensate front-line workers, but they haven’t been perfect. “The solutions are small. They’re piecemeal,” said Molly Kinder at the Brookings Institution’s Metropolitan Policy Program. “You’re seeing these innovative pop-ups because we have failed overall to do something systematically.”

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