Historically high savings rate in the US: When you think of the financial implications of COVID, the words that come to mind are – Unemployment, Recession. However, the US household savings rate reached a record high in April at 33% of disposable income! The reasons for this bounty are nuanced, as are the long-term expectations for the Economy
1. With COVID, there just were not enough places for people to spend their money. With reduced driving, limited vacationing opportunities, partially open restaurants and mostly closed recreational business such as movies and concerts, saving has become the “forced” option for many who have sources of income
2. Another aspect that has aided the saving was the government injecting large amounts of cash into the economy, in the form of grants and loans in response to the COVID related economic downturn
3. Underlying the higher savings rate is also a general wariness about the economic outlook as the pandemic stretches into its sixth month. Families are feeling the need to hunker down and add to their nest eggs to deal with uncertain times.
This inevitably brings up the question – how do we expect the economy to perform in the long term? The outlook for the economy is largely positive. Companies that were severely affected by the pandemic are expected to gain momentum as demand recovers. Other companies that did not see their products or services affected by COVID, have seen earnings that have mostly triumphed over lower expectations.