Household Savings Collapse Sparks Recession Fears Among Economists

While Americans had built up savings at an unprecedented rate following the pandemic, households are struggling to put money away this year—a trend that has fueled fears among economists of an incoming recession.

During the COVID-19 health emergency, when many across the country were forced into lockdowns and the national economy suffered a shutdown, people’s personal savings thrived, with people saving as much as 30 percent of their monthly income and having $2.3 trillion in excess savings between 2020 and 2021, according to the Federal Reserve.

For context, it should be noted that these excess savings were concentrated in the top half of households by income, while many lower-income households struggled to make ends meet.

Three years later, the rate of savings among American households is rapidly falling. In February, the U.S. personal savings rate was estimated to be around 4.6 percent—much below the decades-long average of about 8.9 percent, according to the Bureau of Economic Analysis. But what does this mean?

Some economists think that the collapse of household savings could lead to a spending slowdown and trigger a recession. Consumer spending currently represents about 70 percent of the U.S. GDP, a crucial factor influencing the country’s economic growth.

“Don’t see a Recession? It’s Last Call at the bar,” tweeted housing analyst Amy Nixon, sharing recent data from Wells Fargo showing how personal savings has collapsed in the U.S. “The smart people have already paid the tab and gone home. The remainder will wake up tomorrow with regrets,” she added.

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