Coronavirus causes dramatic rise in Americans’ savings rate
As savings rose, spending plunged
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Americans saved a record amount of their income in April, as the coronavirus pandemic caused businesses across the country to shut down and individuals were encouraged to stay in their homes.
According to data released by the Bureau of Economic Analysis on Friday, the personal savings rate as a percentage of personal income jumped to 33 percent in April, from 12.7 percent in March. At about one-third of personal income, 33 percent, is the highest savings rate since the BEA began recording and reporting the data in the late 1950s.
For comparison, the personal savings rate has largely remained in the single digits throughout the past three decades.
The statistic accounts for what people have left after they pay taxes and spend money.
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April also saw a 10.5 percent month-over-month increase in personal income, which the agency largely attributed to the fact that individuals were receiving their economic impact payments from the federal government.
During the same month, however, personal consumption expenditures declined by 13.6 percent – or $1.6 trillion – indicating people were less willing to part with their cash.
Specifically, there was a $943 billion decrease in spending on services, in addition to a $758 billion decline in spending on goods. The latter drop was heavily driven by less spending on food and beverages, according to the BEA.
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The uptick in savings, and decline in spending, came as millions of Americans lost their jobs. As of Thursday, about 40 million individuals had filed for initial jobless claims since mid-March. In April, the unemployment rate jumped to 14.7 percent – a level not seen since the Great Depression.
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Consumer spending patterns may change as state economies begin to reopen and consumers have greater access to the goods and services they are accustomed to. Spending, which accounts for a majority of GDP, is expected to play an important part of the U.S. economic recovery.