With inflation surging and pandemic-related stimulus rolling off the books, U.S. savers are under pressure.
In April, the U.S. personal savings rate fell to 4.4%, the lowest since September 2008, according to data from the Commerce Department published Friday.
"In a typical cycle, a sharp drop in the saving rate would be a warning sign about the sustainability of spending," Wells Fargo economists led by Tim Quinlan wrote in a note published earlier this week.
"Because balance sheets are in such better shape, we see less cause for concern today. In fact, it is actually our baseline forecast for the saving rate to fall below its prior-cycle average of 7.2% through the end of 2023."
The personal savings rate is a data series among those most distorted by the government's efforts to bolster the economy through the Covid-19 pandemic, and a decline has been expected.
In April 2020, the savings rate hit a record 33.8% as government checks hit consumer bank accounts and the spread of Covid-19 kept many people at home and businesses closed.
So while the level of savings is under pressure, economists estimate consumers are still sitting on a stock of unused savings worth trillions. And that's why Ian Shepherdson at Pantheon Macroeconomics called April's decline in the savings rate "no big deal."
"The stock of excess savings is still $2.2 [trillion], and the rundown over the past three months has averaged only $41B per month," Shepherdson noted. "This can continue for a long time yet, but that won’t be necessary as real incomes will start to rise again in the second half [of 2022]."
Quinlan's team at Wells Fargo recently estimated that U.S. consumers have some $2.3 trillion of "excess savings," or savings above and beyond what pre-pandemic trends showed folks stocking away.
"Households have accumulated an estimated $2.3 trillion (not annualized) on their balance sheets," Wells Fargo noted, "and household net worth rose about 30% over the past two years through the fourth quarter. This overall rise in net worth is true across wealth percentiles and leaves households in a relatively better financial position than after past recessions."
Earlier this month, earnings reports from Walmart (WMT) and Target (TGT) spooked investors, with slowing sales and ballooning inventories at these retail giants perhaps suggestive of a consumer environment that was eroding rapidly.
Subsequent reports from other retailers and strong signals from the travel sector, however, have allayed some of these fears about an imminent pullback in consumer spending. As JetBlue (JBLU) told investors earlier this week, the "demand environment continues to be strong" with sales in June set to be "meaningfully better" than what was seen in April and May.
At the same time, as discount retailers like Dollar General (DG) and Dollar Tree (DLTR) suggested earlier this week, consumers have become more "intentional" in where and how they spend money — particularly when it comes to essentials like food and grocery items.
With the stock of savings sitting at record levels, economists also expect that the rate of savings will continue to decline as consumers rundown these cash piles accumulated during the pandemic.
"In fact, we would not be shocked if at some point the saving rate actually dipped into negative territory," Quinlan's team stated. "That has never happened before, but the backdrop also has never before looked like it does today. The personal saving rate is calculated as simply the difference between total disposable personal income less personal outlays. With income slowing, a low saving rate is not only possible, but highly likely."