### 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.
Inflation is causing a decline in affordability for average working individuals, with prices on everyday necessities such as groceries, gasoline, and housing rising significantly in the past two years due to government spending and the Fed's money-printing.
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.
Rapidly falling house prices have caused a "cost of owning crisis," with tens of thousands of homeowners falling into negative equity over the past year, making it difficult to sell or remortgage properties. Experts predict that more households will face difficulties as house prices continue to decline, with the Government's tax and spending watchdog expecting a 10% fall in prices. However, there are expectations of a rebound in house prices in the future, particularly for those intending to live in their homes for several years.
The US experienced a significant decline in wealth last year, but millennials saw their net worth rise due to their higher investment in real estate, debunking the myth that they are financially struggling.
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.
The surging stock market and rebounding property values have propelled U.S. household wealth to a record high of more than $154 trillion in the second quarter, fully offsetting the losses incurred during the previous year.
The COVID-19 pandemic and the expiration of pandemic-era programs have led to a rise in child poverty and an increase in the overall poverty rate in the US, while household income has fallen and inflation has soared, according to the US Census Bureau.
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.
The child poverty rate in 2022 has more than doubled compared to 2021, primarily due to the expiration of pandemic-era programs such as the child tax credit, which provided support for basic necessities and decreased financial hardships for families.
The lingering effects of the pandemic have led to a 2% decrease in household income in Minnesota, causing poverty rates to rise, with 9.6% of the population now living below the federal poverty threshold.
American workers are facing a decline in median annual household income due to high inflation, with 17 states experiencing a decrease while only five saw an increase, according to data from the Census Bureau. The labor market remains challenging, with wages rising but not enough to keep up with inflation.
The Biden administration's economic policies, known as "Bidenomics," have led to inflation and a decrease in median household income, causing American families to lose ground economically. The media's focus on the poverty rate ignores the negative impact of government welfare programs and inflation on Americans' financial well-being.
The American middle class has been shrinking while the number of people at the bottom and top of the economic spectrum has grown, according to recent studies, with the middle class dropping from 61 percent in 1971 to 50 percent in 2021.
US housing starts fell to their lowest level in three years, indicating a slowdown in homebuilding activity due to mortgage rates lingering above 7%.
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 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.
The UK's inflation-fueled cost-of-living crisis is predicted to increase premature deaths and widen the wealth-health gap, with the most deprived households experiencing four times the number of extra deaths compared to the wealthiest households, according to a study published in BMJ Public Health.
Consumer confidence in the US fell for the second consecutive month in September 2023, with the Expectations Index dropping below the recession threshold, reflecting concerns about rising prices, the political situation, and higher interest rates. Assessments of the present situation were relatively unchanged, while expectations for business conditions, job availability, and incomes declined. Concerns about the current and future financial situation of families also increased.
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%.
American household debt has reached record levels in the second quarter of 2023, as Americans have taken on more debt amidst diminishing savings and high interest rates.
Lower income households and Black and Latino communities will face significant economic hardships due to the expiration of COVID-19 federal support programs, a potential government shutdown, the end of federal funding for childcare, and the resumption of student loan debt repayments.
The decline in net household financial savings is largely due to the increase in their liabilities, with household financial liabilities rising from 3.8% to 5.8% of GDP in 2022-23, leading to concerns of growing household distress and potential implications for the broader economy.
The pandemic-driven surge in housing prices may weaken further if borrowing costs continue to rise, putting heavily indebted countries like Canada, Australia, Norway, and Sweden at risk of defaults, according to the Organisation for Economic Co-operation and Development (OECD). Although falling home prices are unlikely to trigger a financial crisis like the 2008 recession, it could have a negative impact on the economic outlook and necessitate intervention by policymakers.
The richest Americans are seeing their share of wealth and income increase despite expectations that the pandemic might narrow the wealth gap, with the top 1% holding roughly 26.5% of household net worth and the share of income going to the top 5% growing. On the other hand, the bottom 40% has seen a smaller slice of the pie even as their net worth has risen.
The wealthiest Americans have seen their share of wealth and income increase during the pandemic, while the bottom 40% saw their slice of the pie shrink, despite initial expectations of narrowing the wealth gap.
The Social Security Administration is expected to announce a smaller cost-of-living adjustment for retired Americans in 2024, potentially at 3.2%, due to cooling inflation, which is a decline from the 8.7% increase seen in 2023 but still higher than the average increase over the past two decades.
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.
