Americans Begin to Draw Down Pandemic-Era Savings

Interesting article in the WSJ this morning that confirms what myself, as well as what many others were saying months ago - the whole "consumer is strong" narrative that has been stated over and over again is starting to roll over... they were only strong BECAUSE of the Stimulus (unemployment, stim checks, Child Tax Credits, etc.) - guess what? They're burning through that now and they'll burn through it much quicker than most people think.

Thoughts?

Americans are starting to dip into the huge pile of savings they accumulated over the first two years of the pandemic.

From the start of the pandemic to the end of 2021, U.S. households built up $2.7 trillion in extra savings, according to Moody’s Analytics. Covid-19 lockdowns kept people at home with nowhere to spend money, and three rounds of stimulus payments boosted their incomes.

Now, with inflation at its highest point in decades and wage gains trailing behind, Americans are turning to that stash to cover costs.

The personal saving rate, a measure of how much money people have left over after spending and taxes, reached 5.4% in May. That figure is below the average of the past decade and far below the record of 34% in April 2020, according to the Bureau of Economic Analysis. Families have tapped about $114 billion of their pandemic savings so far, according to Moody’s Analytics, which analyzed government data.

“Most households have a cash cushion to navigate through the very high inflation,” said Mark Zandi, Moody’s Analytics chief economist. “This is allowing consumers to stay in the game.”

Stimulus checks and expanded child-tax-credit payments helped Shannon Houston and her husband cover major expenses, including day- “It was just enough buffer to make things easier month to month,” said Ms. Houston.

The child tax credit gave families as much as $300 per child each month in the second half of 2021, but that ended in December. The federal government’s last stimulus checks were sent more than a year ago.

Each month this year, the Connecticut couple has drawn on their savings, which includes money from the child tax credit as well as prepandemic savings. Higher prices are forcing the family to spend more on gas and groceries for their two children, Ms. Houston said.

Ms. Houston, 37 years old, works part time as a freelance communications specialist for nonprofit organizations but is considering returning to work full time when her son starts kindergarten in the fall.

“We don’t want to comcare. pletely squander our savings,” she said.

Americans’ checking-account balances jumped after they got their pandemic stimulus payments, bank executives have said. While customers have spent some of that money, balances remain markedly above where they were in 2019, said Chris Wheat, copresident of the JPMorgan Chase Institute, the bank’s in-house think tank. At the end of March, balances of families with the lowest incomes were 65% above 2019 levels.

Still, they used to be higher. In March 2021, around the time of the third round of federal stimulus checks, balances for those families were up 126% from 2019 levels.

JPMorgan Chief Executive Jamie Dimon last month said U.S. consumers still had between six and nine months of spending power remaining in their bank accounts.

Darius Palmer built up an investment account of more than $5,000 by stashing away money from his paycheck and some earlier pandemic stimulus payments. But he turned to his credit card to cover costs for trips this year to Philadelphia and Washington, D.C., when they were more expensive than he anticipated.

The 24-year-old industrial engineer is weighing different options for paying off the $2,000 balance. He plans to cancel a meat-subscription service that costs around $150 a month and buy fewer books. If the North Carolina resident can’t cover the payment with his income, he plans to dip into his investments.

Mr. Palmer is also concerned about the potential end of the student-loan payment moratorium. The government paused payments on federal student loans in the spring of 2020, though borrowers might have to start making monthly payments again this fall.

“I know what it’s like to have to tighten the belt,” Mr. Palmer said.

The bottom 20% of earners was the only income group that didn’t draw on their pandemic savings in the first quarter of the year, Moody’s Analytics found. “These are folks working in leisure, hospitality, retail, healthcare,” Mr. Zandi said. Strong wage growth has allowed many of these workers to continue to save.

Eric Cullen was laid off from his job at AmeriCorps at the start of the pandemic. Over the following months, he was able to save about half of his federal stimulus checks and unemployment payments.

The 27-year-old continued to increase his savings after he took a job at an upscale New Orleans restaurant in spring 2021, where he initially earned about $500 a week as a busser and food runner. A staff shortage helped him get promoted to a waiter position, where he sometimes brought home as much as $1,500 weekly.

Mr. Cullen recently moved back to his hometown near Albany, N.Y. He noticed gas prices going up steadily on the drive north from Louisiana. “I was initially taking this summer off,” he said.