US Consumers Delve Into Savings to Keep up With Spending Habits as Incomes Tumble in October

As numerous stimulus programs that were part of the CARES Act ended over the summer, with the remainder set to expire by the end of December, more than 14 million Americans will soon end up with no emergency unemployment benefits unless Congress enacts another stimulus bill – and fast.

However, it is becoming very apparent that no such stimulus bill will likely occur until after the presidential inauguration, and therefore it is no surprise that household incomes, which have thus far been upheld by government transfer payments, fell by 0.7% in October. The decline is significantly more than the 0.1% drop that was previously expected.

Simultaneously though, the month of October saw spending rise by 0.5%, surpassing prior predictions of 0.4% growth, only slowing down by 0.7% relative to September, and still rising for the sixth consecutive month. However, with incomes falling sharply, and government transfer payments disappearing into the abyss, how is it possible that American households have managed to push a spending increase for yet another consecutive month?

Well, unlike the Fed which can just create however much money it wants out of thin air, American households have been burning through their savings, which in October have fallen to 13.6% after soaring to a whooping 33.7% shortly after the CARES Act was passed back in April.

At the current pace, the savings rate will be back to normal just in time for a double-dip recession in the beginning of the year – if in fact JPMorgan’s forecast of a 1% GDP drop in the first quarter is correct. This means that the safety net that has been propping up US consumers, who account for more than 70% of America’s GDP levels, is nearly drained.

On a last side note while still on the topic of incomes, the month of October saw private sector wages rise by 3% on a year-over-year basis, and rise modesty from 2.6% in September, well on their way to a solid recovery to pre-pandemic levels. On the contrary however, government wages dropped by 2.2% in October, which happens to be the largest annual decline in government wages on record. This anomaly certainly begs the question: as Trump mulls over his next steps following what was a disastrous election, was one of his early Christmas presents to the “deep state” a decline in compensation?

Information for this briefing was found via the US Bureau of Economic Analysis. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

Leave a Reply