The savings rate in the United States is just 0.1% above its all-time low going back to 1959! In yet another significant drop, the savings rate reached just 2.3% in October. While that represents the lowest rate since 2005, it is only 0.1% above the lowest rate recorded in the past 63 years! If the economy deteriorates fast enough, the Fed pivot is all but guaranteed. Rising poverty rates and a falling savings rate are key metrics to the unfolding story.
U.S. Savings Rate – 1 Year Chart
Historic U.S. Savings Rate
While some say the consumer is less worried about the future and spending because of some underlying confidence, I have my doubts. In reality, inflation, a weakening economy, and soaring borrowing costs have put the average household into a dangerously tight spot.
Half the U.S. Population is Flirting with Poverty?
The poverty rate increased from 10.5% of the U.S. population in 2019 to 12.8% in 2021. Considering the U.S. has a population of about 340 million, nearly 8 million more people now count themselves among the poverty-stricken. The U.S. now has approximately 44 million citizens living in poverty. Again, one look at the savings levels tells the story.
Here are some troubling stats to remind everyone just how fragile the U.S. economy is and how careful the Fed has to be as it works to kill inflation:
According to a late August report by Jack Flynn titled 19 American Savings Statistics [2022]: Average Personal Savings Accounts, Demographics, And Facts:
- “As of 2022, 42% of Americans have less than $1,000 in savings.
- The average American savings account balance is $4,500.
- Between 1959-2022, the average U.S. savings rate has been 8.96%.”
source: https://www.zippia.com/advice/american-savings-statistics/
Poverty and Savings Rate Could Force Fed Pivot
So, while about 44 million live in poverty, close to 150 million Americans, or 42%, are one bad break away from being unable to afford a significant expense—deeply troubling data. If the economy stumbles and the inflation rate comes down at all, a Fed pivot will be in play.
Staying on the U.S. savings rate, how can anyone think a collapsing savings rate is a good thing? On the contrary, by its very definition, Americans are saving less, which may derail the economy should anything go awry.
A savings rate at a near 60+ year low tells me the Fed can hardly continue to tighten. The poverty rate is soaring in America when the savings rate is crashing. Again, it’s the rate of increase. The poverty rate is from 10.5% to 12.8% in three years. The savings rate was above 8% in December of 2021 and has averaged almost 9% over the past 60-odd years. Now the rate has fallen to the low 2% range. We are witnessing precipitous unsustainable declines.
The Fed is about to pivot, and the market is figuring this out. The collapsing savings rate is another sign the U.S. economy is tapping out. A final caveat is that inflation also steals from the poorest. But, with nearly 150 million citizens with only $1,000 in savings, the Fed cannot afford a hard landing for the U.S. economy. So the second inflation appears to be under control, the Fed will have to pivot or risk a collapse.
