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.
“If everyone across the broad economy is hunkering down, that only makes the recession worse,” said Marc Odo, portfolio manager at Swan Global Investments. “It’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.