Worried About the American Consumer? Don’t Be.
Households are still reaping the benefits of a surge in home equity and aren’t in the mood to save. That’s good news for the economy.
A middle-class wealth boom.
Photographer: Justin Sullivan/Getty Images North AmericaArguably, the biggest question about the US economy right now is whether consumers can maintain their pace of spending. Student loan payments resume in October. Pandemic-era excess savings are expected to run out as soon as this quarter. The personal savings rate, which was around 9% prior to the pandemic, was 3.5% in July, not far from the all-time lows set in the mid-2000s.
If there’s one reason to remain optimistic on household spending, it’s that the “excess savings” framework doesn't capture the full picture of household balance sheets. Adjusted for income, household net worth remains near a record high. That's driven, importantly, by the surge in home values and home equity levels during the pandemic. Additionally, there’s no reason to think consumers will shift back to the caution and elevated savings rates of 2019 — activity patterns in 2023 are closer to what we should expect going forward.