(CNN) — Americans saved quite a bit of money during the pandemic: $2.1 trillion, to be exact.
That extra cushion kept consumers spending in the years ahead and kept the economy robust despite rising interest rates and persistent, if gradually declining, inflation.
But now that that extra money is gone, economists are worried about the future.
What is happening: The most recent estimates of the pandemic savings glut in the US economy have turned negative, according to Hamza Abdelrahman and Luiz Edgard Oliveira, economists at the San Francisco Federal Reserve.
This means that many Americans have more debt than savings and suggests “that American households will have completely 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 has shown notable strength over the past two years. But now that the savings glut has dwindled to nothing, that could hurt spending and spell trouble for the U.S. economy.
Alarmingly, debt is also piling up. Chicago Fed President Austan Goolsbee stated last month that while consumer debt levels are not yet “especially” high, the Fed is concerned about the rate of consumer defaults, i.e. , non-payment or late payment of expenses such as car loans, credit card bills, and rent.
Americans saved about $2.1 trillion during the pandemic. Now everything has disappeared. (Credit: Charly Triballeau/AFP/Getty Images)
“If the consumer loan delinquency rate starts to rise, it’s usually a leading indicator that things are about to get worse,” he said in a roundtable moderated by the Society for Advancing Business Editing and Writing.
Real GDP – a broad measure of the US economy – grew just 1.6% annualized in the first quarter of the year, well below economists’ forecasts. Some analysts are already lowering their growth expectations for this year.
Fitch ratings wrote in a recent report that it “expects growth to slow to a significantly below-trend pace later this year.”
Retailers are nervous, too.
Consumers aren’t shopping like they used to, and in recent weeks many retailers have announced price cuts to lure people into stores and encourage them to spend money on new clothes, home decor items and craft or hobby kits.
Shoppers have been holding back for a year, as costs have risen more than three years ago and revenues have not been able to keep pace, according to Sarah Wyeth, managing director of retail and consumer at S&P Global Ratings.
Financial results lay bare concerns: Shares of Tyson Foods, one of the world’s largest meat companies, plunged nearly 6% on Monday after the meat packer reported that consumers were pressured by inflation , high costs and unwillingness to spend as before.
Starbucks also saw its stock decline sharply after the coffee shop cut its full-year guidance, citing declining sales and tough macroeconomic conditions.
McDonald’s CEO Chris Kempczinski noted that consumers were keeping their wallets closed on the company’s earnings call earlier this month. “Consumers continue to be even more demanding with every dollar they spend as they face high prices in their daily spending, which is putting pressure on the industry [de restaurantes de servicio rápido]”, said.
The positive side: The excess household savings built in 2020 and 2021 certainly played a role in strengthening the economy, Abdelrahman and Oliveria said, but it was “just one of many possible factors that helped consumers maintain savings levels.” robust spending.”
The U.S. labor market, while cooling somewhat, remains incredibly strong, with the unemployment rate still near record lows. “A remaining strong labor market could help consumers maintain spending patterns similar to those seen recently, even without pandemic-era savings,” they wrote.
What comes next: Disney, Airbnb, Uber, Anheuser-Busch, Tapestry and Dillards report results this week. Investors will be watching for any comments on how consumer spending, or lack thereof, is altering 2024 revenue forecasts.
