U.S. consumers could be forgiven for thinking their cash has never been as tight as it will be in 2023: Inflation remains high, the Federal Reserve is raising rates, and government fiscal support is starting to dry up.
However, BofA’s analysis paints a different picture, highlighting strong spending growth and relatively high household savings compared with 2019.
The resilience of consumer spending has surprised economists and may even be a headache for the Federal Reserve, which has had to push consumers to a “pain point” in order to curb inflation, with interest rates hitting their highest level in 2019. Ten years.
However, signs of a slowdown in spending are emerging, with Deloitte predicting growth will slow to 1.9% this year from 2.8% in 2022. Bank of America said the slowdown could be related to the public’s perception that its financial position has deteriorated in 2022-23.
An analyst note released Wednesday pointed to a study University of Michiganasking consumers to assess their financial situation by comparing their current situation to the previous year and five years ago.
When comparing the financial situation in 2023 and 2018, the public generally believes that their financial situation has improved. But compared with a year earlier, respondents said they actually thought they were worse off.
This is a by A recent study A third of people say their financial situation is worse than a year ago, while only a quarter say they are better off than they were a year ago, the report from the Bipartisan Policy Center (BPC) said.
Bank of America analysts see this as reasonable, writing: “A key reason why people find their finances under pressure may be the effect of high inflation on people’s ability to spend and what they perceive as a given amount of dollars is no longer elastic. at present.
“Also, rising interest rates have affected borrowing costs for some households.”
larger buffer
However, while consumers don’t feel like their dollars are rising as much as they used to, BofA noted that consumers “still appear to have significantly more cash in their checking and savings accounts than they did before the pandemic.”
In fact, across all income groups in July 2023, the median number of checking and savings accounts is 54% higher than the 2019 average, according to Bank of America internal data.
As a result, consumers may feel that they are worse off financially—even if they save relatively more—because they have different levels of savings.
“Savings and deposits have retreated from their peak in the first half of 2021,” Bank of America noted.
“Low- and middle-income groups have seen the greatest percentage increase in their buffers compared to before the pandemic, but since then their balances have fallen the most.”
Is it time to forget about lockdown?
Savings goals will be even more urgent than in a pandemic, when people are locked at home and unable to spend their usual budgets on eating out, commuting, traveling and more.
According to the FedU.S. households amassed about $2.3 trillion in savings between 2020 and summer 2021, “more than they would have saved had their income and spending components grown in line with recent pre-pandemic trends.”
As such, the fact that consumers are drawing down on locked-in reserves says more about the public’s financial outlook than the fact that savings remain above pre-pandemic levels, BofA said.
Savings and checking accounts are “very liquid” and often tied to day-to-day spending, the analyst noted, adding: “So in the medium term, what people consider appropriate for these balances may depend on how much they earn and spend. How much.
“As people earn and spend more, they may want to have higher savings balances to cover a rainy day and support their standard of living as they draw on their savings.”
Ultimately, Bank of America said it expects to see a reduction in locked-in reserve payouts (or “YOLO” payouts as Wharton professor Jeremy Siegel calls them) by 2024, adding: “The exact timeline depends in part on deposits relative to How deposits are changing.” Income, inflation and, of course, consumers’ views on the broader economic outlook. “
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