As Americans adjust their spending habits in a rapidly changing economy, they are building cash reserves at an unprecedented rate.
The Bureau of Economic Analysis reported on May 29th that the personal savings rate hit a historic 33% in April. To put that into perspective, it’s the highest number since the Bureau started tracking personal savings in the 1960s.1
Economists are struggling with the question, “When will consumers be confident enough to start spending some of that cash stockpile?”
Optimists say the stockpile was due to “forced savings.” Staying home has led to less spending overall, on everything from clothes to commutes. As soon as restrictions loosen, that money could flow back into the economy.
On the other hand, pessimists may say that until virus fears drop and the unemployment rate improves, consumers will continue to conserve cash as a response to tremendous economic uncertainty.
We believe there is some merit in both schools of thought. We will be watching the personal savings rate alongside other economic indicators to see what, if any, long-term trends emerge.
If you’d like to discuss your personal savings rate, please give us a call. We’d welcome the chance to hear about any changes you have made in recent months.
1. CNBC.com, May 29, 2020
An Unprecedented Rush to Cash
July 16, 2020