Americans are earning less and saving more during the coronavirus outbreak.
The April jobs report is expected to show the highest unemployment rate on record — 16.1 percent, according to a Wall Street Journal forecast.
Many who are still employed are getting smaller paychecks. Personal income fell 2 percent in March, mainly due to a $327.6 billion drop in workers’ salaries and bonuses, CNN reported.
However, the savings rate — the percentage of money a person deducts from his or her disposable personal income to not spend — was up from 8 percent in February to 13.1 percent in March, according to the U.S. Bureau of Economic Analysis.
The savings rate was already up in the last couple of years, but it’s at its highest since 1981 as covid-shocked consumers who still have money — but nowhere to spend it — hoard it instead.
Simultaneously, spending — “the engine of the U.S. economy” — fell by a record 7.5 percent in March, plummeting at a faster rate than income.
Groceries were one of the exceptions, with spending increasing 19.1 percent in March. However, people weren’t buying cars (which led the decline) or paying for services such as health care, dental and food services, Marketwatch reported. They also virtually stopped spending on leisure, recreation and travel.
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The gain in savings rate gives households a way to “boost consumption a little when the lockdown eases,” said Paul Ashworth, chief U.S. economist at Capital Economics.
Consumers are saving money at a time when bank savings, money market accounts and Treasury bonds are yielding next to nothing after the Federal Reserve slashed reduced interest rates to zero in March and launched lending programs in the wake of the COVID-19 pandemic, CNN reported.
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For people “really just relying on their bank savings account earnings, you’re not going to benefit from low interest rates,” Federal Reserve Chairman Jerome Powell said at a press conference on Wednesday.
Since early 2013, the savings rate has been creeping up from 5.8 percent after a budget deal was reached. Possibly, Americans were bracing for an inevitable downturn.
“The savings rate had risen dramatically in the last couple years already,” said Robert Frick, corporate economist with Navy Federal Credit Union in a tweet.”Speculation is people were bracing for the next recession. I don’t look for silver linings, but the more people bank, the better the recovery.”