Steve Van Metre, an expert in economic trends and personal finance, discusses the alarming drop in U.S. consumer savings to just 2.9%. He explains how this decline signals a potential economic downturn and raises concerns about consumer spending and job insecurity. Businesses face challenges in workforce retention and inventory management as consumers become increasingly anxious about their financial futures. Van Metre also addresses the impact of rate cuts on economic stability amidst these troubling trends.
The U.S. savings rate has fallen to 2.9%, indicating heightened consumer reliance on credit amid stagnant incomes and rising costs.
Declining consumer spending, driven by fears of job loss, is negatively impacting businesses and suggesting a potential economic downturn.
Deep dives
Declining Savings Rate Signals Economic Trouble
The U.S. savings rate has dropped to a historic low of 2.9%, indicating that consumers are struggling to maintain their spending amid stagnant incomes and rising costs. This minimal savings rate is often associated with recessionary conditions, as it reflects a reliance on credit and deficit spending, leading consumers to make cuts in discretionary spending. Without a significant increase in wages or economic activity, consumers may continue to deplete their savings, necessitating even larger reductions in spending to stabilize their financial situations. As consumers cut back, businesses may see decreased foot traffic and sales, potentially leading to reduced work hours and subsequent layoffs, creating a vicious cycle that could compound economic challenges further.
Consumer Sentiment and Spending Behavior Shift
Worsening economic conditions and signs of a declining labor market are influencing consumer behavior, as people begin to conserve their finances out of fear of job loss or reduced income. Several retailers, such as Dollar General and Lulu Lemon, have reported disappointing sales, signaling a broader trend of reduced spending across various income demographics. As consumers perceive slower economic activity and increased unemployment among peers, they are likely to pull back on spending even before they face financial hardship themselves. This preemptive shift in consumer sentiment can exacerbate the economic downturn, as decreased spending by consumers negatively impacts retailers and the wider economy.
Business Inventory and Employment Concerns
Businesses are currently facing challenges with excessive inventory levels due to diminished consumer demand, which has led to hesitance in hiring and workforce expansion. Companies are reporting erratic sales figures and are reliant on the expected benefits of rate cuts, yet many leaders express skepticism about these measures effectively restoring growth. The lack of optimism in business hiring intentions, evidenced by a notable decline in job openings, suggests that many employers are preparing for continued economic stagnation. Consequently, this cautious approach from businesses coupled with consumer reluctance to spend will further hinder economic recovery efforts and deepen recessionary pressures in various sectors.
The most significant macro data from the past week certainly wasn't GDP (it wasn't even the most important datapoint within its own series), instead it was personal savings. It is yet another confirmation of what we've been hearing from across the economy and markets. Consumers are tapped out, and they're out of money because of jobs and incomes.
Eurodollar University's conversation w/Steve Van Metre
BLS Metropolitan Area Employment and Unemployment (Monthly) https://www.bls.gov/web/metro.supp.toc.htm
BLS Over-the-year percent change in total private average weekly earnings for metropolitan areas, not seasonally adjusted https://www.bls.gov/charts/metro-area-employment-and-unemployment/metro-area-oty-percent-change-in-average-weekly-earnings.htm
Challenger, Gray, & Christmas Challenger Report: Job Cuts Remain Low While Hiring Falls to Lowest YTD Since 2012 https://www.challengergray.com/blog/challenger-report-job-cuts-remain-low-while-hiring-falls-to-lowest-ytd-since-2012/
