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You wouldn’t expect to hear that saving money could create a new economic threat. That’s exactly what Americans are doing.
Amid the coronavirus pandemic, more Americans than ever are cutting out extra spending. They are saving as much money as they can and scaling back credit card debt. All in fear of jobs disappearing.
Two big indicators of current spending habits in the United States? In March, credit card debt fell by the largest percentage in more than 30 years. Plus, savings rates have climbed to levels unseen since the Reagan administration.
This is, of course, a direct reflection of the never-before-seen turmoil in the US economy, stemming from the pandemic. Caution is a logical response to uncertainty.
However, this type of hunkering down will also pose a big risk to the US economy. An economy dominated by consumer spending. It’s difficult to recuperate if consumers are sitting out.
The unemployment rate soared to 14.7 percent last month. This makes this the most severe unemployment crisis since the Great Depression. More than 33 million Americans filed for unemployment in the last couple of months.
On top of that, economists warn that the job market likely won’t return to pre-COVID levels for years.
Fear and uncertainty among the American public is high.
The perceived probability of job loss over the next year soared to nearly 21 percent, according to a New York Federal Reserve survey. The perceived probability of finding a job in the next few months also took a hit, dipping to 47 percent.
Americans have also drastically scaled back their credit card debt. This is partially due to consumers being more frugal and reining in their borrowing. It is also partly due to people being unemployed.
Although these shifts are rational in the face of uncertainty, they point to long-term challenges for the consumer-driven economy.
It means that simply reopening the economy is likely not enough.
Even after stay-at-home orders are lifted, many won’t be leaving home and spending aggressively until there is a vaccine.
Higher risk Americans, such as senior citizens and those with pre-existing conditions, will likely shy away from public spaces and crowds.
In general, it is going to be difficult to lure people into the restaurants, sporting events, or planes for travel. At least, for the foreseeable future.
