### Summary
📉 Americans could run out of savings as early as this quarter, according to a Fed study. Excess savings are likely to be depleted during the third quarter of 2023.
### Facts
- 💸 As of June, US households held less than $190 billion of aggregate excess savings.
- 💰 Excess savings refer to the difference between actual savings and the pre-recession trend.
- 🔎 San Francisco Fed researchers Hamza Abdelrahman and Luiz Oliveira estimate that these excess savings will be exhausted by the end of the third quarter of 2023.
- 💳 Americans are using their credit cards more, accumulating nearly $1 trillion of debt.
- 📉 The downbeat forecast raises concerns about the US economy as consumer spending is crucial for growth.
### Summary
The chief global economist at Piper Sandler has warned that the U.S. economy is set to worsen before improving, and Americans should save money and maintain their savings. Rising everyday prices, declining manufacturing activity, excessive government spending, and a tight labor market are all contributing factors.
### Facts
- Americans are spending $709 more on everyday goods in July compared to two years ago.
- One-third of U.S. households spent more than 30% of their income on housing in 2021.
- Excessive government spending is blamed for high prices.
- The declining birth rate and closure of maternity wards indicate that Americans are postponing having children.
- Inflation is a major challenge for the economy, and a recession will put pressure on all wealth groups.
- The economist argues that the fiscal stimulus from the Inflation Reduction Act has had a "counterproductive" impact on controlling inflation.
- To see an economic turnaround by 2025, the private sector needs to drive capital spending, while curbing government spending and reforming entitlements is necessary.
- The economist hopes for sustained low inflation and increased labor force participation but emphasizes the need for tough decisions in Washington.
- The economist believes that the U.S. needs to get its fiscal house in order to become a leader in the global economy.
The Swedish economy is expected to experience a downturn over the next two years, with GDP forecasted to shrink in 2023 and 2024 due to low domestic demand and a slowdown in export growth, making it one of the worst-performing economies in the EU; however, there is uncertainty and the possibility of a milder downturn depending on the resilience of the economy. Furthermore, the Swedish krona is expected to continue weakening until mid-2024, and household incomes are projected to fall until 2025, but households are strengthening their financial positions and reducing debt.
US consumer spending is showing resilience and robust growth, although signs of a slowdown are emerging, potentially related to the public's perception of a deteriorating financial situation due to high inflation and rising interest rates, despite the fact that households still have higher deposits compared to pre-pandemic levels.
Consumer spending is driving third-quarter GDP growth, but unsustainable spending habits, tightening lending standards, and the depletion of pandemic savings may lead to a decline in consumer spending in early 2024.
China's economic slowdown is being caused by a property market downturn, softening demand for exports, and low household spending, which poses risks to financial stability and could lead to deflation and deeper debt problems. Economists are uncertain if the government's current measures, like interest rate cuts, will be enough to boost consumption and meet growth targets. Structural reforms and measures to increase household consumption are needed to address the imbalance in the economy.
U.S. consumer spending increased in July, boosting the economy and reducing recession risks, but the pace is likely unsustainable as households dip into their savings and face potential challenges from student debt repayments and higher borrowing costs.
Japanese household spending experienced its largest decline in almost 2-1/2 years due to rising prices; however, the impact of volatility in certain areas suggests that the outlook may not be as dire as the headline figures indicate.
US household savings accumulated during the pandemic are expected to be depleted by the end of September 2023, as the excess savings have steadily declined and are projected to continue falling at a rate of $100 billion per month, potentially impacting consumer spending and the wider economy.
The US economy is predicted to enter a recession by spring, leading to a 25% or more crash in the S&P 500, according to economist David Rosenberg, who warns that American consumers are nearing their spending limits and rising home prices reflect a weak housing market.
Consumer spending has remained resilient, preventing the US economy from entering a recession, and this trend will likely continue due to low household debt-to-income levels.
The US consumer is predicted to experience a decline in personal consumption in early 2024, which could lead to a potential recession and downside for stocks, as high borrowing costs and dwindling Covid-era savings impact household budgets.
Despite increased household wealth in the US, millions of households are struggling financially due to inflation, high interest rates, and rising living costs, which have led to record levels of debt and limited access to credit.
US household income fell by the most in over a decade in 2022, showing the impact of rising costs and the expiration of pandemic relief programs, with the median income dropping 2.3% and marking the third consecutive annual decline, contributing to concerns about the financial well-being of American families.
Many experts predict that savings account interest rates will remain steady in 2023 but could start dropping in 2024.
A drop in savings among Americans and record credit-card debt could have disastrous consequences for the economy if a recession occurs, as data shows personal savings rates remain historically low and many Americans have less than $5,000 in savings.
The impending federal shutdown, combined with other economic challenges such as rising gas prices, student loan payments, and reduced pandemic savings, is expected to strain American households and potentially weaken economic growth in the last quarter of the year.
The Canadian economy has entered a long-delayed recession due to highly indebted households, overvalued home prices, and a slowdown in consumer spending, with the recession expected to last until the first quarter of 2024 and result in a 1.5% decline in GDP and an increase in the unemployment rate to 7.2%.
The latest Federal Reserve study reveals that Americans outside the wealthiest 20% have depleted their savings during the pandemic, with cash on hand now lower than pre-pandemic levels, potentially leading to a decline in consumer spending and a potential economic downturn.
Global wealth experienced a significant decline in 2022, with a 2.7% drop in households' financial assets worldwide, primarily driven by falling asset prices; however, there is optimism for a rebound in 2023 and subsequent years, with projected growth of 6%.
Indian households are saving less than they have in 50 years, with net household savings declining to 5.1% of GDP in 2022-23, which poses a problem for India's long-term growth strategy that relies on debt-fueled household consumption and government investment.
Amid economic uncertainty, Americans are saving less, but continuing to spend, which may help the economy avoid a recession; however, many are struggling financially and have little to no savings, relying on credit card debt to make ends meet, and experts recommend building a larger emergency fund to navigate through potential economic contractions.
Americans have $1.2 trillion more in excess household savings than previously estimated, which could be good news for the economy as it tries to address inflation and could delay the depletion of savings until next year, according to revised government data.
American families are facing a variety of financial challenges, including inflation, high costs of living, and increasing mortgage rates, which are making it difficult for young families to buy homes; in addition, sudden job loss can lead to a financial doom spiral.
Economists are predicting that the U.S. economy is less likely to experience a recession in the next year, with the likelihood dropping below 50% for the first time since last year, thanks to factors such as falling inflation, the Federal Reserve halting interest rate hikes, and a strong labor market.
Mortgage rates are expected to decrease significantly by the end of 2024, but a shortage of available homes will lead to higher sales prices for the next few years. Despite the drop in rates, the low inventory of new homes will drive up purchase costs. Additionally, a sluggish economy, rising unemployment, and declining inflation may lead to a recession in early 2024. However, the combination of these factors will eventually help bring down mortgage rates further in the following years.
The decline in interest rates over the last few decades, which few people consider, has had a profound impact on the financial world, distorting investments, clouding judgment, and now potentially leading to a shakeout as the era of ultra-low borrowing costs comes to an end.
The depletion of pandemic savings and government aid in the US is leading to financial strain for low- and moderate-income households, potentially putting the nation at risk of recession by early 2024. Americans are cutting back on spending and using loans to make ends meet as stimulus checks and other forms of assistance run out.
The household savings rate in the US has significantly dropped since the Covid-19 pandemic subsided, in contrast to other countries.
Consumers are showing signs of slowing down their spending, with growth rates dropping and lower-income households depleting their savings, signaling a low growth, low inflation economy, according to Bank of America CEO Brian Moynihan. Despite the Fed's efforts to tackle inflation, economists remain cautious about the future economic uncertainty.
American families experienced significant gains in income and wealth from 2019 to 2022, but the largest increases were seen among high-earning and white families, while Hispanic and Black families experienced small declines in median income, according to a Federal Reserve survey. However, all ethnic and income groups saw a rise in median net worth, with the lowest-earning households seeing the smallest increase. The survey also revealed that Black households had the lowest median net worth, while white and Asian households had the highest. Education levels played a significant role in income increases, with those with at least some college education or a degree seeing their incomes rise. Overall, the survey showed that financial fragility declined during the period, with households displaying greater financial resilience post-pandemic.
Despite the pandemic, family finances in the US improved between 2019 and 2022, with a 37% increase in average net worth and a narrowing wealth gap, although income inequality remained a concern, according to a survey from the Federal Reserve.
The net worth of the typical U.S. household has grown at the fastest pace in over three decades, primarily due to rising home values, higher stock prices, and increased ownership of homes and stocks, despite the brief recession caused by the pandemic; extensive government aid and low interest rates have played a significant role in this growth.
Despite predictions of a soft landing for the U.S. economy, many Americans are still preparing for a recession by monitoring spending, limiting discretionary purchases, and considering long-term savings investments, according to surveys. Additionally, some homebuyers are hopeful that a recession will lead to lower home prices and mortgage rates, making it a more opportune time to buy. However, the lack of housing inventory remains a challenge for buyers, with over 60% reporting difficulty in finding suitable homes within their budget range.
A new report from Bankrate shows that a majority of households feel behind on saving for emergencies, with only 19% increasing their emergency savings balances since the beginning of the year, citing inflation and high household expenses as the main obstacles.
Mortgage rates may see a slight decline in 2024, potentially offering some relief for homebuyers, due to possible rate cuts by the Federal Reserve, decreasing inflation, and a cooling job market.
About two-thirds of Americans say their household expenses have increased over the past year, while only one-fourth report an increase in income, leading to concerns about financial futures, with most Americans having either rising or stagnant household debt.
Summary: Capital Economics predicts that mortgage rates in the United States are unlikely to fall below 6% before the end of 2025, due to higher forecasts for U.S. Treasury yields, which will dampen housing affordability and sales volumes.
Consumer spending continued to drive economic growth in the third quarter of 2023, as gross domestic product (GDP) increased at a rate of 4.9%, beating expectations and putting recession fears to rest. However, concerns about high mortgage rates and limited housing supply could slow economic growth in the coming quarters.
About two-thirds of Americans report that their household expenses have risen in the past year, while only about a quarter say their income has increased, leading to concerns about financial futures and a significant amount of household debt.
