Will Americans Go on a Spending Spree?

One notable feature of the COVID-19 downturn has been an extraordinary rise in the personal saving rate. It spiked to historic levels, from 8.3 percent in February to 33.6 percent in April. While it has come down since then, it is still elevated, at 14.1 percent as of August. That’s $1.1 trillion extra in people’s pockets at a time when the economy, and millions of workers, are struggling. Why have savings increased so dramatically? First, the shutdown of the economy meant certain forms of spending were largely unavailable. Even if they had wanted to, consumers couldn’t buy haircuts, elective surgeries or international vacations. Second, both job loss and concern over health risks created tremendous uncertainty. Consumers may well have chosen to save more money to help bridge to an uncertain future. Net, consumer spending dropped 6.1 percent from March to August versus the same period a year ago. We also saw a significant reduction of outstanding credit card balances.