WASHINGTON: The coronavirus pandemic has wiped out millions of jobs in the United States, but it’s had the unexpected effect of increasing savings rates among Americans, especially wealthy people stuck at home and forced to give up travel and entertainment. Along with the dramatic reduction in leisure spending, things like government stimulus checks, unemployment benefits and the suspension of monthly loan repayments for more modest earners have swelled the bank accounts of Americans who are usually known to be crumbling under debt.
Americans have accumulated $1.8 trillion in excess savings in the 11 months since the start of the pandemic, according to figures released this week by Barclays and Oxford Economics. “And, we estimate that this number could rise to $2.5 trillion by this summer,” Gregory Daco, chief US economist at Oxford Economics, told AFP.
The savings rate of Americans, which averaged seven to eight percent before the crisis, spiked to a record 33 percent in April 2020, thanks to a massive $2.2 trillion COVID relief package for households and businesses, according to Bureau of Economic Analysis data. The savings rate was holding at 13.7 percent at the end of December, though decreasing as various forms of aid expired.
It jumped in January to 20.5 percent after $600 stimulus checks were included in a $900 billion plan adopted by Congress at the end of December. And, it could rise again this spring, as lawmakers consider the Biden administration’s $1.9 trillion relief package. Overall, the savings trend has highlighted the disparities between rich and poor in the United States, with wealthy households saving much more than families of modest means who have been hardest-hit by job losses and have used stimulus money mostly to pay bills.
The richest Americans were generally able to maintain their jobs through teleworking – their income has remained constant while spending has plunged, resulting in excess savings. “About four-in-ten Americans (42 percent) say they have been spending less money than usual since the pandemic began, and that is especially the case among upper-income adults,” according to a survey of 10,334 Americans by the Pew Research Center, released Friday.
Some 53 percent of higher-income Americans reported spending less, compared with 43 percent of middle-income and 34 percent of low-income people. While financially secure people were unable to spend on leisure and travel, low-income Americans reported spending less because they were worried about personal finances.
“Many Americans were already struggling to save money before the coronavirus outbreak hit,” Pew said, with 47 percent of low-income adults unable to save, compared to 25 percent for those who are middle-income. Only eight percent of upper-income Americans had the problem. Saving rates were even more unequal when broken down by race, with 38 percent of black adults saying they are usually not able to save, compared with 31 percent of Hispanics, 27 percent of white respondents and 19 percent of Asians, the Pew data showed.
The fundamental question remains: Whether the record savings rate will boost consumption in the United States, where consumer spending is historically the driver of the economy. Before the pandemic, it represented two-thirds of the GDP. “Our outlook assumes a fairly rapid acceleration in household spending in the coming year and we make the explicit assumption that households will draw down on accumulated saving in the process,” Barclays economists said.
They noted the potential “for a substantial rebound in consumption post-pandemic if households experience higher benefits – akin to “euphoria” – from consuming after a period of deprivation”. Daco is not so sure. While he anticipates a rebound in consumer activity, he noted that spending on things like travel probably won’t skyrocket to a rate that would make up for a year’s shortfall.
“Are we going to take all the trips that we would have liked to take last year, in addition to those planned once the pandemic is over? Are we going to travel in business or first class on the pretext that we have more money tucked away?” he asked. “Not necessarily.” – AFP