Half of Americans are buckling down to save for a safety net

Americans will need a larger boat or savings account. The high cost of living and recession fears that plagued 2023 have left many households tucking away more money under their mattresses in preparation for the next bout of economic turmoil.

Half (48%) of Americans have saved more of their income in the past six months to have a “safety net for the future,” according to Ipsos’ latest Consumer Tracker. This is part of a small, steady trend toward budgeting, down slightly from the 50% who said the same in February but up slightly from the 46% who said the same last September. Nearly as many (45%) said they were saving to “treat themselves” later.

They also postpone spending on needs and wants. About a third (34%) of Americans pushed back or skipped purchasing a major item such as a car, per Ipsos. And 27% of Americans delay home or car repairs to save more money stands at 27%.

The fatigue and dissatisfaction of consumers with the economy is likely to fuel this saving mentality. A separate Reuters/Ipsos poll found that 73% of respondents believe the economy is worse than it was five years ago, a sentiment that permeates across party lines. It’s easy to see why Americans feel spent (and thus don’t spend); After facing a coronavirus recession when the pandemic first hit, many households didn’t have time to come up for air before struggling with supply chain issues and 40-year high inflation. And as the government hikes interest rates to cool inflation, this year has brought a will-they-or-will-they type of recession fear. It is also the psychological response to a pandemic, war, genocide, and just general socio-economic choppy waters.

Of course, not all is bad. The jobs market remains strong and the unemployment rate, although slightly higher in October, remains low. But the numbers don’t always match how consumers view the economy, and an overwhelming sense of strain has made Americans more budget-prone.

We tend to hold on to our purse strings in times of economic strife. People are likely to “save more when they expect an economic downturn to last for a long time — the ‘precautionary’ motive for saving,” economist Guillaume Vandenbroucke explained in a blog post for St. Louis Fed. “If the downturn is not expected to last, people are likely to use their savings to maintain their consumption; that is, they will continue to pay their rent, mortgage, utility bills, etc.”

Spending may slow, as hibernation is upon us

In today’s economy, many people feel like they are treading water or almost drowning, with 60% of Americans reporting that they are living paycheck to paycheck, per a Lending Club report. Many have turned to dipping into their pandemic-era savings to stay afloat. But it also helped some chug along despite the odds.

In September, consumer spending in each household rose 0.7%, per the Commerce Department. Many consumers splurged on a summer of travel and cultural fanfare, from concert tickets for Beyoncé and Taylor Swift to the “Barbie” and “Oppenheimer” double feature.

But the spend-happy consumers are buckling down when winter approaches – even the rich. Retailers that the upper middle class often favors (like Apple, Coach and Nordstrom) have experienced a dip in sales over the past three months, as first reported by Bloomberg.

“While this group remains in a relatively comfortable financial position compared to lower-earning peers, they are not completely immune to factors like prolonged elevated inflation, rising interest rates and cooling wage growth that could dampen spending this holiday season,” Kayla Bruun, senior Economist in morning consult told Mazel S Alicia Adamczyk of six-figure earner. A recent note from Morgan Stanley says that “thrift behavior is climbing up the income ladder.”

It is likely that consumers felt emboldened to spend despite inflation and poor wages as the initial recession fears of the beginning of the year died down, acting as the economy’s small engine that could. But as recession fears resume (although the impending recession looks to some experts to be mild), there is a change blowing in the wind amid the holiday season.

“Headwinds will eventually force the consumer to buckle, and I think we’ll see consumers have to pull back on spending for a quarter or two,” Erik Lundh, chief economist at the Conference Board, told CNN.

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