Caution to the wind: What happened to the saving rate?

Summary

Household saving dynamics have faded in importance, yet revised data show remaining liquidity isn't as concentrated as previously thought. Liquidity remains elevated across the wealth-spectrum. But households saved at the lowest rate in 14 months in February, and data suggest lower-income consumers are struggling to save at all. Saving less on a monthly basis in order to sustain spending can continue to add to an already robust spending trajectory this year, but it raises the vulnerability of the household sector generally.

What happened to the saving rate?

Pandemic-era savings are less consequential today in sustaining consumer spending than they were a few years ago. That is not to say that all the sand has entirely spilled through the hourglass; households still have more cash on hand today than a linear trend extension from the prior cycle might suggest. A more interesting concept is whether the experience of the past few years has re-shaped consumer behavior. One perhaps unexpected legacy from the era of swollen savings accounts has been a shift to a structurally lower saving rate in this cycle. In this report we explore how even as excess cash remains more evenly distributed across the wealth-spectrum than previously thought, lower-income consumers are growing more financially strained.

Even as “excess” liquidity has faded in importance, the saving rate is still a key metric for tracking consumer health. Spending outpaced income growth in February as the personal saving rate slid to 3.6%, marking the lowest rate at which households saved in 14 months. The saving rate is off its post-pandemic low, which broke below 3%, but still remains well-below the average rate at which households were saving in the pre-pandemic era (~6.1%).

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