Americans’ Savings Are Shrinking. Should We Be Worried?

If there is a recession in the United States this year, it probably won’t be because consumers spontaneously run out of spending power. (If unemployment abruptly rises, that’s another matter.) I’ve put together five charts that show that consumers are in reasonably good shape, although life is getting harder for the most vulnerable groups.

Households aren’t “the place to look for economic weakness,” Michael Pearce, the deputy chief U.S. economist for Oxford Economics, a forecaster, told me last week.

True, it’s easy to find worrisome statistics. The personal saving rate fell in December to 3.7 percent of disposable personal income, which except for a dip in 2022 was the lowest since 2008. “In 2023 consumers were still on average somewhat better off financially than they were in 2019, but the trend is negative,” the Consumer Financial Protection Bureau wrote in a December report. “While there are some indications the economy is improving, what our experience shows is that many families are not seeing this improvement in their bank accounts,” Mike Croxson, the chief executive of the National Foundation for Credit Counseling, said in a statement last week.

But the news isn’t all bad. The first chart is from a study last year by Federal Reserve staff economists estimating the remaining amount of “excess” savings — greater-than-usual savings that households accumulated during the pandemic, when there was lots of stimulus money coming in and relatively few opportunities to spend it.

Measuring excess depends on defining normal, which is tricky. The Fed study found that if you define normal using the saving pattern for the entire period since 1950, the excess has been more than used up. But going by the pattern since just 1990, households are still sitting on excess savings equal to 4 percent of U.S. gross domestic product, leaving them with plenty of spending power.