The US savings rate—how much money Americans were putting away after paying their bills—was 6.3% of their income in February. That’s slightly up from 6.1% in January, but still much lower than 2019’s annual 7.6% rate or 2020’s unusually high 16.3%.
Despite economic turmoil from the pandemic, savings had grown in the past two years because of federal stimulus checks and extended unemployment insurance. But that’s fading away as government stimulus recedes. Meanwhile, the labor market recovery is still short of the pre-pandemic levels. The drop in savings has been especially sharp for poor Americans.
“Consumers overall still have a sizable pandemic-related savings surfeit, however, the lowest quintile households have largely exhausted their savings,” said Kathy Bostjancic, chief US economist at Oxford Economics.
The high savings rate during the pandemic had allowed workers to shop around for new jobs. The lower savings rate could mean there will be less quitting going forward, according to AnnElizabeth Konkel, an economist at jobs site Indeed.
That might not happen for some time though. As of now, the job market remains tight with 1.8 job openings per unemployed person in the US. Meanwhile, the quits rate, or the percentage of employed people quitting their jobs, is near November’s record of 3%. “It is not until later this year going into next year that a slowing of economic activity and demand could lead to a looser labor market,” said Bostjancic.
Salaries rose by 0.8% in February; if that pace continued for a year, it would be equal to 10% on an annual basis. Rising prices are cutting into higher pay, though. Americans’ disposable income adjusted for inflation declined by 0.2%.
Americans are reacting to the higher prices. Consumer spending adjusted for inflation dropped by 0.4% in February.