Oct 27, 2023 - Economy & Business

U.S. savings rate falls as consumers drive growth

Data: FactSet, U.S. Bureau of Economic Analysis; Chart: Axios Visuals

Americans' savings rates slid again in the third quarter as consumer spending led the charge to a strong reading on U.S. economic growth.

Why it matters: Analysts have been watching falling rates of consumer savings — which surged during the pandemic and created a big savings cushion — for hints about whether consumers are reaching the end of their ability to fuel spending growth.

  • The answer appears to be no: The savings rate fell to 3.8% in Q3, from 5.2% in Q2 — while consumer spending jumped by a solid 4%. That helped push the quarter's GDP growth rate to 4.9%.

💭 Our thought bubble: It's the labor market, folks. The focus on when the supposed excess savings will be exhausted fundamentally misunderstands how savings function for most people.

  • Savings usually go up when the economy is weak or has suffered a shock — or both, such as the period after 2008 — leaving people more cautious and eager to sock away money.
  • When the economy is good — like now, with the unemployment rate seemingly pinned below 4%, or back in the mid-2000s — people are more willing to operate with low levels of savings, because they're confident they're going to keep receiving a paycheck.

The bottom line: Regardless of what people say their views on the economy are, the low savings rate is a statistical confirmation that many consumers are feeling all right about it.

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