The United States has passed some of the largest stimulus packages in its history in the last few years. As a result of this money in the hands of consumers, consumer spending increased and inflation rose to its highest level since the early 1980s. Now that we are removed from these events, where does the U.S. consumer stand going forward and what could it mean for consumer spending?
In April 2020, the consumer savings rate shattered all-time highs, reaching 33.8% of income vs. the average range of 5%-10%. Consumers responded by putting those dollars to work in the economy in late 2020 and throughout 2021. This coincided with the U.S. stock market growing just over 78% from its bottom in March 2020. Consumer spending is a good economic indicator when attempting to gauge the economy’s health, but it is not the end-all-be-all. A strong consumer spending environment should result in rising stock earnings and also indicate economic confidence.
If you had to guess how much of that stimulus money has been spent, I would think most of us would wager that it has been exhausted. However, the chart below shows that consumers still hold a collective 700 billion in savings from stimulus money. This would indicate that there is still room to run for consumer spending.
On the flip side, the blue line on this chart shows the consumer’s personal savings rate. Throughout 2022, that rate dropped, likely due to increasing inflation and slower-than-inflation wage growth, hitting a low in June of 2022 at 2.7%. As wage increases have grown, the savings rate has also grown, but it still falls short of the pre-2020 trend line. This signals a potential problem in the future after stimulus excess savings have been exhausted.
So besides being interesting information (at least to us at Master’s!), why does this matter for the average investor? We’d love to hear your thoughts!
