There are more signs that US households are running out of savings. According to a survey from the FRBNY, the average likelihood of a credit applicant needing 2000$ within the next month rose, reaching the highest level since February 2021. At the opposite, the average likelihood of a credit applicant coming with 2000$ within the next month dropped to the lowest level since February 2022. These results were published after a Federal Reserve research paper shows US excess savings accumulated during the pandemic has been exhausted since Q1 2023.
*This article was written by Christophe Barraud and was republished with consent.
The June SCE Credit Access Survey (a triennal survey) published by the Federal Reserve Bank of New York points to weakness in US households’ finances. The difference between the average probability of a credit applicant coming with 2000$ within the next month and an applicant needing 2000$ fell to the lowest level since data are recorded. It confirms US households are now running out of savings.
Data Source: Federal Reserve
Meanwhile, earlier this month, according to a recent Federal Reserve research paper, the COVID-19 pandemic has left an indelible mark on the global economy, prompting unprecedented fiscal measures to mitigate its impact. Among the notable consequences has been the accumulation of excess savings. However, recent developments indicate a significant shift in this landscape, with research suggesting a depletion of US excess savings. The more accelerated drawdown of excess savings in the US likely contributed to relatively stronger support for aggregate demand over the past year compared to other countries. It also implies lower consumption potential for the coming months.
Data Source: Federal Reserve
In summary, latest Fed releases suggest households’ finances deteriorated over the past few months with savings falling sharply. It raises concerns about future consumption as several factors are already expected to weigh on spending by the end of the year, raising the probability of a recession.
About the Author:
Christophe Barraud is Chief Economist and Strategist at Market Securities. He has been awarded by Bloomberg the title of Top Forecaster of the U.S. Economy (from 2012 to 2020 and in 2022), Eurozone Economy (from 2015 to 2019 and in 2022) and Chinese Economy (from 2017 to 2020). He also won the latest Forecaster of the Year contest organized by MarketWatch in 2020. Since 2021, he has been Adjunct Lecturer at ESCP in the MSc Finance, which has been ranked first worldwide in the 2023 Financial Times Masters in Finance ranking.
