As the COVID-19 lockdown took hold, savings rates spiked
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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
How are Americans feeling about their finances?
Nearly half of all Americans would have trouble paying for an unexpected $250 bill and a third of Americans have less income than before the pandemic, according to the latest results of our Marketplace-Edison Poll. Also, 6 in 10 Americans think that race has at least some impact on an individual’s long-term financial situation, but Black respondents are much more likely to think that race has a big impact on a person’s long-term financial situation than white or Hispanic/Latinx respondents.
Find the rest of the poll results here, which cover how Americans have been faring financially about six months into the pandemic, race and equity within the workplace and some of the key issues Trump and Biden supporters are concerned about.
Are people still waiting for unemployment payments?
Yes. There is no way to know exactly how many people have been waiting for months and are still not getting unemployment, because states do not have a good system in place for tracking that kind of data, according to Andrew Stettner of The Century Foundation. But by his own calculations, only about 60% of people who have applied for benefits are currently receiving them. That means there are millions still waiting. Read more here on what they are doing about it.
What’s going to happen to retailers, especially with the holiday shopping season approaching?
A report out Tuesday from the accounting consultancy BDO USA said 29 big retailers filed for bankruptcy protection through August. And if bankruptcies continue at that pace, the number could rival the bankruptcies of 2010, after the Great Recession. For retailers, the last three months of this year will be even more critical than usual for their survival as they look for some hope around the holidays.
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