Retail Spending Boom Amid Still Strong Saving
Americans are making every effort to live their best lives. Our “spend, baby, spend” culture contrasts typical prudent financial wisdom that says to “save more, spend less.” At TFC, we aren’t about spend-shaming people, but we encourage clients to be thoughtful about what they do with their money.
Save Smart
Having a smart savings strategy is critical to a long-term financial plan. Contributing to a 401(k), IRA, and Health Savings Account are key fundamentals that help build long-term wealth. Paying off high-interest-rate debt and having some form of an emergency account to tap are additional necessary foundational steps.
We got to thinking about those core fundamentals this week when we saw some of the outrageous retail sales economic data released last Thursday. The American consumer is doing what they do best – spending. But heck, we all want to have some fun with those stimulus checks! And everyone is ready to live life again. Perhaps the ongoing spending storm makes some sense.
The Spending Boom & Savings Story
The US Retails Sales report revealed a 9.8% surge in spending in March versus February as stimulus checks were put to work. We’ll talk about the impact of all that consumption later in the always-exciting inflation recap, but folks were out and about at bars and restaurants. It was a record month for total retail sales. Well done, America.
What’s funny is that the nation is spending more than ever, yet we are also saving a ton! This truly puts a grin on every financial planner’s face.
The US Personal Savings Rate registered at 13.6% in February, above the 10-year average of 8.3% in the latest report. The past few years pre-COVID featured Americans saving about 6% of their income. 6% doesn’t sound like much, but it’s an improvement from the mid-2000s when everyone was buying up houses and loading up on debt. Today’s consumer appears more conservative with an eye to the future – that’s a great trend!
Bank of America Global Research: US Personal Savings Rate
You’ll notice in the above chart that Americans amped up the savings during the heart of the pandemic. Recessions often cause consumers to tighten their bootstraps, much like squirrels gathering nuts for a brutal Michigan winter. As the economy emerges from the bad times, we come out of hibernation and begin to spend again. The same is happening now, but the difference is both President Biden and former President Trump were adamant about providing financial relief to low and middle-income families via direct-payment stimulus checks.
So individuals and families who are most likely to spend are indeed using those stimulus payments for everyday items and discretionary activities. Hence, the US Savings Rate fell from 19.8% in January, and it is off the high of more than 30% from April last year.
What are folks splurging on? The latest Consumer Price Index report offers clues.
Inflation Ticks Higher
We also got a look at the latest inflation numbers in the monthly CPI report. Rising food and energy costs led to a larger than expected jump in the overall cost of living by 0.62% from the prior month. The category (aside from gas prices) that rose the most? “Lodging Away From Home” as travel was a big theme. Everyone is just itching to get out and about. Perhaps the rest of the year will be one of the biggest domestic excursion periods in our country’s history. Just this week, the NY Times reported that travel agents are seeing a surge in interest.
The Point
We hope that the apparent trend of higher savings sticks with everyone, particularly among natural spenders. We know you’re out there! Having a simple strategy to tuck away a little every two weeks or each month into the right accounts will build significant wealth over time.
We’ll talk next week!