Americans Are Out of Savings

Estimated reading time: 3 minutes

Cash Crunch

U.S. bank accounts were flush with savings to the tune of $2.1 trillion following the pandemic. Those savings have now run dry, according to the Federal Reserve Bank of San Francisco. And that’s having a profound impact on consumer spending and the overall economy.

Consumer Contractions

First things first: The reason economists worry about how consumers are doing is because every dollar spent, does its part to growing the economy. That’s why so many analysts have been nervous about whether (and how much) Americans will cut their spending in the face of high inflation.

When inflation first accelerated in 2021, savings helped stem the sticker shock. Even though inflation has come down from its 2022 peak, prices remain high today. And consumers are adjusting: In April, retail sales declined by 0.2%, suggesting a downshift in spending. At the same time, the share of credit card balances delinquent for 90 days or more has pushed to the highest level since 2012, according to the New York Fed.

Major corporations including Target (TGT) and Walmart (WMT) have also acknowledged changes in consumer behavior, including a shift away from discretionary purchases to necessary staples. Walgreens (WBA) unveiled plans to close stores this week, calling consumers  “stunned” by higher prices.

Financial Future

So what’s next? Investors, economists, and regular Americans, too, are waiting for the Federal Reserve to cut interest rates and offer some relief to consumers who have to contend with both high prices, and high borrowing costs. As of the first quarter of 2024, U.S. household debt sat at a record high of $17.7 trillion, and while many households are benefiting from higher home and stock values, others are feeling the weight of high rates.

But so far, the Fed hasn’t budged. The central bank raised interest rates to combat the high post-pandemic inflation, but its members continue to note that inflation hasn’t come down as quickly as they had hoped. For the moment, the silver lining of higher interest rates is that people can earn more in their savings accounts.

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