Savings are up, spending is down. Are consumers better off or just nervous?
Savings are up, spending is down. Are consumers better off or just nervous?
Consumer spending fell 0.2% last month. Meanwhile, the personal saving rate rose by half a percentage point, which is still much lower than it was before the pandemic.
But what does that tell us about how consumers are doing in this economy?
Mingli Zhong of the Urban Institute said the slight increase in personal saving rate is a reflection of inflation slowing down.
“Prices are not as expensive, so we don’t have to spend as much as the beginning of 2022,” Zhong said.
This means there’s a little more for people to save. But Gregory Daco at EY-Parthenon believes the rise in the saving rate and the drop in consumer spending show that people are getting nervous.
“It’s extremely difficult for families to put aside money in this high inflation environment,” he said. “They’re being more cautious with their spending, and they’re also trying to make sure that they put some money aside on a monthly basis.”
Even though people saved a little more last month, they didn’t save that much. Wendy Edelberg at The Brookings Institution said that’s actually a good sign.
“The saving rate itself is very much affected by what’s happening to household wealth,” Edelberg explained. “So it’s not unusual for the saving rate to be super low when housing wealth is really high and when stock market wealth is doing well.” Which is the case right now.
Overall, when people are really freaked out about the economy, Edelberg said they pull way back on spending and put a whole lot more into savings.
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