(Charly Triballeau/AFP/Getty Images)
Americans saved quite a bit of money during the pandemic: $2.1 trillion worth, to be exact.
That extra cushion meant that consumers kept spending in the years that followed and the economy remained robust despite rising interest rates and persistent, though gradually decreasing, inflation.
But now that extra spending money is gone, economists are concerned about what comes next.
What's happening: The most recent estimates of excess savings in the US economy have turned negative, according to Hamza Abdelrahman and Luiz Edgard Oliveira, economists at the San Francisco Federal Reserve.
That means many Americans have more debt than savings and suggests "that American households fully spent their pandemic-era savings as of March 2024," they wrote in a recent report.
Consumer spending plays a crucial role in driving economic growth in the United States, and it has shown remarkable strength over the past two years. But now that excess savings have now dwindled to nothing, that could hurt spending and spell trouble for the American economy.
Alarmingly, debt is also accumulating. Chicago Federal Reserve President Austan Goolsbee said last month that while consumer debt levels aren't yet "especially" high, the Fed is concerned about the rate of consumer delinquencies, or missed or late payments on expenses such as auto loans, credit card bills and rent.
"If the delinquency rate of consumer loans starts rising, that is often a leading indicator for, 'things are about to get worse,'" he said at a moderated panel hosted by the Society for Advancing Business Editing and Writing.
Real GDP — a broad measure of the US economy — rose just 1.6% annualized in the first quarter of the year, coming in well below economist forecasts. Some analysts are already drawing down their expectations for growth this year.
Fitch ratings wrote in a recent report that it "expects growth will slow to a significantly below-trend rate later this year."
Retailers are also getting nervous.
Consumers aren't shopping like they used to and a slew of retailers in recent weeks have announced price cuts as they strive to pull people into stores and entice them to spend money on things like new clothes, decorative items for the home and arts and crafts or hobby kits.
Shoppers have pulled back for a year now as costs have risen higher than they were three years ago and as incomes failed to keep up, said Sarah Wyeth, managing director, retail and consumer with S&P Global Ratings.
Earnings calls expose worries: Shares of Tyson Foods, one of the largest meat companies in the world, plunged nearly 6% on Monday after the meatpacker reported that consumers were under pressure from inflation, high costs and unwilling to spend like they used to.
Starbucks also saw a large drop in its stock price after the coffee house cut its full-year forecast, citing a decline in sales and tough macroeconomic conditions.
McDonald's CEO Chris Kempczinski noted that consumers were keeping their wallets closed in the company's earnings call earlier this month. "Consumers continue to be even more discriminating with every dollar that they spend as they face elevated prices in their day-to-day spending which is putting pressure on the [quick service restaurant] industry," he said.
The silver lining: The excess savings households built in 2020 and 2021 certainly played a role in bolstering the economy, said Abdelrahman and Oliveria, but it was "only one of many possible factors that helped consumers maintain robust spending levels."
The US labor market, while cooling off a bit, still remains incredibly strong with unemployment rate still near historic lows. "A continuing strong labor market could help consumers maintain spending patterns similar to those observed recently, even without pandemic-era savings," they wrote.
What comes next: Disney, Airbnb, Uber, Anheuser-Busch, Tapestry and Dillards all report later this week — investors will look for any comments about how consumer spending, or lack thereof, is altering revenue forecasts for 2024.
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