American Spending Is Saving the Economy

By: Anneken Tappe · October 17, 2023 · Reading Time: 2 minutes

American Consumerism

The U.S. economy is fueled by consumer spending, and Americans have done the nation proud over the past years.

Unlike citizens of other developed countries, Americans today are saving less than they were before the pandemic, according to research from the New York Fed .

Savings Down, Spending Up

Before Covid, the average American household saved more than 6% of their disposable income. During the pandemic, those savings jumped up to 13.6%, boosted by stimulus checks, and fewer opportunities to spend while the economy was shuttered. Since 2022, however, the savings rate hasn’t reverted back to its pre-pandemic level. Rather, it fell further, to only 4% of disposable income.

Savings patterns in countries like the United Kingdom, Japan, and Canada have been a lot less volatile over this period.

Star-Spangled Spending

During the pandemic, many families received a windfall of stimulus payments, which contributed to the skyrocketing savings rate. However, psychologically, consumers may not have considered this cash “earned” and as such may be more willing to spend it freely. On top of that, the historically strong labor market may have given people the added confidence to keep spending.

Another reason to spend big: Things have gotten more expensive. High inflation drove up the cost of everything, meaning people had to spend more overall to keep their consumption the same.

Even so, consumer spending helped the economy stay on track, as spending contributes more than two-thirds of U.S. GDP.

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