Americans’ Savings Shortfall Could Weigh on Growth

Savings Slump

Americans collectively saved more than $2 trillion during the pandemic, helping to keep consumer spending and the economy afloat. But in the years since, those savings have dissipated, replaced by a rising level of debt.

Pandemic-era excess savings now sit at -$72 billion, according to the San Francisco Fed .

Spending Shift

Consumer spending accounts for roughly two-thirds of the U.S. economy. Even amid the multi-decade high inflation and interest rates seen in recent years, spending remained resilient, thanks in large part to those trillions in savings. Now, the savings shortfall leaves future economic growth in question.

Through the first-quarter earnings season, several major companies have reported a slowdown in discretionary spending, including McDonald’s (MCD), Starbucks (SBUX), and the world’s second largest meat processor, Tyson Foods (TSN). These companies cited inflation and price-sensitive consumers as driving forces behind the slowdown.

Given their consumer-facing nature and nationwide reach, when multiple big-name businesses send up the same flare, it could be a warning sign for the economy at large.

Mixed Signals

After surprising on the upside for several quarters, the most recent GDP numbers came in under estimates, leaving future growth expectations uncertain. The Federal Reserve Bank of Atlanta is still projecting 3.3% growth in the second quarter, but a persistent drawdown in spending could significantly hamper growth through the end of the year.

On the bright side, the labor market remains historically strong. Despite recent signs of softening, unemployment still hovers near historic lows at 3.9%. Meanwhile, there are more job openings than job seekers, and the market has added an average of 240,000 new jobs per month for the past year. Although challenges persist for consumers, if the labor market maintains its strength, they may be able to rise to meet them.

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