With no shopportunities, the savings rate is at an all-time high

by | Jun 1, 2020

The personal savings rate hit an all-time high of 33% in April, according to the US Bureau of Economic Analysis. The personal savings rate is a measure of how much people save as a percentage of their disposable income.

  • The savings rate was 12.7% in March and 8.2% in February.

Saving during the Covid-19 pandemic is especially unique because hundreds of thousands of small and large businesses shuttered their doors in an effort to restrict the spread of the virus. It makes sense: with fewer shopportunities, people ended up saving more of their income.

Unfortunately, while saving is normally a good thing, the high savings rate is not beneficial to the economy. Consumer spending accounts for a majority of GDP, and it plays an important role in the US economic recovery.

β€œIf everyone across the broad economy is hunkering down, that only makes the recession worse,” said Marc Odo, portfolio manager at Swan Global Investments. β€œIt’s a negative feedback loop. The more people save, the less they spend; the less they spend, the worse the recession gets; the worse the recession gets the more they save.”

If you needed an excuse to do some shopping (online or otherwise)…this is it. Consumer spending habits will play a large roll in whether the economy recovers in a V shape, a W shape or a swoosh.

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