### Summary
đ 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
- đž As of June, US households held less than $190 billion of aggregate excess savings.
- đ° Excess savings refer to the difference between actual savings and the pre-recession trend.
- đ 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.
- đł Americans are using their credit cards more, accumulating nearly $1 trillion of debt.
- đ The downbeat forecast raises concerns about the US economy as consumer spending is crucial for growth.
### Summary
đșđž 61% of Americans are living paycheck to paycheck, according to a new report.
### Facts
- đ About three-quarters of consumers earning under $50,000 and 65% of those making $50,000 to $100,000 were living paycheck to paycheck in June.
- đ° 45% of those making over $100,000 reported a paycheck-to-paycheck existence.
- đž Inflation, rising interest rates, and inadequate savings are cited as factors contributing to financial stress.
- đ° 52% of respondents reported feeling more financially stressed than before the COVID-19 pandemic.
Consumers have spent most of their excess savings from the Covid-19 pandemic, and this trend is expected to continue until the third quarter of 2023, potentially leading to a slowdown in economic growth and job market expansion.
A recent survey conducted by Allianz reveals that 61% of Americans are more afraid of depleting their savings during retirement than dying, highlighting the concern over outliving one's financial means in old age.
Despite reaching record levels of total credit card debt and household debt, Americans are actually managing their debt better than in the past due to inflation masking the impact on balances and lower debt-to-deposit levels, according to an analysis by WalletHub. However, the rising trajectory of credit card debt and the increasing number of households carrying balances raise concerns, especially considering the high interest rates, which can take more than 17 years to pay off and cost thousands of dollars in interest. Meanwhile, savers have the opportunity to earn higher returns on cash due to higher inflation and interest rates.
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.
The United States' pandemic-induced stimulus measures have led to the printing of nearly 80% of all dollars in circulation since 2020, resulting in severe detrimental effects on the economy, including surging prices and inflation.
The rate of people quitting their jobs has returned to pre-pandemic levels, indicating a decline in workers' advantage and a cooling labor market influenced by the Federal Reserve's interest rate hikes, which have led to worsening job prospects and decreased consumer confidence.
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 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.
U.S. consumers have accumulated $43 billion in additional credit card debt during Q2 2022, three times the average amount since the Great Recession, and credit card interest rates have soared to over 20%, raising concerns about the impact of inflation and rising interest rates on consumers' ability to pay off their balances. However, some economists argue that higher wages are helping consumers keep pace with their debt, and the overall rate of charge-offs remains low. Nonetheless, the combination of spent-down pandemic savings and the resumption of federal student loan payments could pose challenges for lower-income borrowers and hinder consumer spending.
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.
The personal lens of individuals' financial well-being is a significant factor in how they rate the national economy, with inflation and high prices being major concerns, leading to a lagging personal recovery for many Americans since the pandemic, which impacts their assessment of the economy; furthermore, individuals who are struggling financially today tend to give worse ratings of the U.S. economy compared to those in similar positions in 2019, which contributes to President Biden's low economy and inflation ratings.
The U.S. inflation rate has been helped by falling medical costs, but this trend is about to reverse, which could complicate the Federal Reserve's efforts to lower inflation back to pre-pandemic levels. The complex way the government measures the rise of medical costs and the fluctuations caused by the pandemic have contributed to the instability in health-care costs. The upcoming rise in health insurance costs is expected to have an impact on inflation, particularly the core rate that excludes food and energy costs. Economists are divided on the extent of this impact and whether it will hinder the Fed's fight against inflation.
The Federal Reserve's decision to leave interest rates unchanged means that savers and individuals with surplus cash have the opportunity to earn a higher return on their money than in recent years, with online banks offering high-yield savings accounts that can provide a return above inflation.
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.
Summary: The Federal Reserve's decision to keep interest rates elevated will result in savers benefiting from higher rates while borrowers will face increased debt payments, impacting Americans' financial health and the broader economy.
The current state of the consumer is concerning as wages are not keeping up with inflation, excess savings from the pandemic have been depleted, and increasing levels of credit card debt are making it difficult to maintain spending levels, leading to potential economic headwinds.
The mishandling of inflation, economy, and the federal budget in the United States has resulted in excellent saving and investment opportunities, with higher interest rates on Treasury bonds, CDs, corporate bonds, and annuity rates, benefiting those approaching retirement the most.
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.
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.
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.
Americans are holding onto more cash than they need due to recession concerns, but holding cash for the long term means losing out on the rising cost of living, and with high-yield savings accounts available, there's no reason to keep cash in low-interest accounts. Experts recommend having at least 6 to 12 months of emergency funds in cash but advise against hoarding cash and instead suggest exploring higher yielding investment options.
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.
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.
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.
