US Savings Rate Plummets as Consumer Debt Surges, Retail Sales Pop

This illustration picture shows debit and credit cards arranged on a desk in Arlington, Va. on April 6, 2020. Olivier Douliery/AFP via Getty Images

The personal saving rate has been on a downward trend since hitting an all-time high during the pandemic, fueled by higher consumer prices, real wage growth’s falling behind the cost of living, and rocketing borrowing costs.

In November, the personal saving rate—a percentage of disposable personal income—was 4.1 percent. It has been below 5 percent since June 2023.

Net saving as a percentage of gross national income has been in negative territory for three consecutive quarters, clocking in at negative 0.7 in the July-to-September period.

Since 1947, this figure has contracted only three times: the Great Recession, the first quarter of 2011, and the COVID-19 public health crisis.

“This is not sustainable,” The Kobeissi Letter, a global capital markets commentary firm, stated on X.

According to a recent Morning Consult poll, Americans are saving less and drawing down more of their pandemic-era rainy day fund. The survey revealed that one-quarter of households could cover basic expenses by using their savings alone, and a fifth say they are unsure how much savings they have to pay for the bare necessities.

The report posed the question whether consumers can keep fueling the economy in 2024 as “savings are drawn down amid heightened economic uncertainty.”

Market analysts have routinely purported that the U.S. economy has been kept afloat because of a resilient consumer, that solid consumer spending has helped the country avert a recession. But although retail trade has been robust in an inflationary and high-rate environment, shoppers have taken on record debt levels to fund their discretionary and non-discretionary purchases.

Retail Sales Pop to Finish 2023

Last month, retail sales rose by 0.6 percent, topping the consensus estimate of 0.4 percent, according to the Census Bureau. This was the best reading since September, lifting the year-over-year headline and core retail sales to an 11-month high of 5.6 percent.

The hotter-than-expected retail sales to close out the year were driven by higher transactions at clothing retailers, general merchandise stores, non-store retailers, building materials and garden equipment outlets, and food and beverage vendors. Health and personal care and gasoline stations saw the most significant decline.

Some economists note that retail sales figures are not adjusted for inflation, so the jump could result from rising food prices and sliding gas prices.

Regardless, retail sales grew in nine of the 12 months in 2023.

But is all this consumption being facilitated by debt?

“I do worry, however, how people are paying for all of this stuff,” Ted Rossman, a senior industry analyst at Bankrate, said in a reaction statement to the retail sales numbers.

“Credit card balances and rates were already at record highs even before the holiday splurge. And buy now, pay later usage spiked 14% from last holiday season, according to Adobe. With 49% of credit cardholders carrying debt into the holidays and 58% of them having been in debt for a year or more, this could be a nasty holiday debt hangover, especially with the average credit card rate a record-high 20.74%.”

Customers wait in line to make purchases at a Target store in Daly City, Calif., on Dec. 14, 2023. Justin Sullivan/Getty Images

The Debt Behemoth

In recent months, there has been an abundance of reports and statistics placing a spotlight on consumer debt trends.

Most notable was the Federal Reserve Bank of New York’s third-quarter data that showed household debt was $17.3 trillion, with credit card debt at an all-time high of $1.08 trillion.

At the same time, new figures highlight other concerning trends.

Bankrate recently reported that 56 million credit cardholders have been in debt for at least a year. It also found that 49 percent of cardholders carry a month-to-month balance and that the two most common causes are emergency and day-to-day expenses.

This is happening as the average credit card rate hovers around a record high of about 21 percent.

Inflation is also playing a significant role in the debt increase, Mr. Rossman recently told The Epoch Times.

“Earnings are unable to keep up with the higher case of inflation. I think there’s a direct correlation, but there can also be a spillover effect,” he said, alluding to the cumulative effect of inflation, which is about 20 percent.

“If typical household expenses were, let’s say, $50,000 a couple of years ago. Right now, they might well be $60,000. And if your wages haven’t gone up by the same amount, something has to make up the shortfall, and for a lot of people, that’s the credit card.”

New Bureau of Labor Statistics (BLS) data show that median weekly earnings are down 5.6 percent from the all-time high in the second quarter of 2020, while real hourly wages are down 2.6 percent from February 2021.

Sales advertisement at a shop in the Fashion Centre at Pentagon City shopping mall in Arlington, Va., on Jan 3, 2024. Madalina Vasiliu/The Epoch Times

Meanwhile, the consequence of debt accumulation is higher servicing payments, which can also lead to more outstanding delinquencies.

In the third quarter, credit card delinquency rates jumped to nearly 6 percent, up from 3.7 percent in the July-to-September span of 2022.

Buy Now Pay Later

Over the past year, more consumers have embraced “buy now, pay later” (BNPL) schemes, growing 17 percent year-over-year during the holidays. This modern layaway program has become more prevalent, from Amazon webpages to Walmart checkout counters.

A recent report from ResearchAndMarket.com forecast that the global BNPL market will exceed $232 billion this year, up from $157 billion in 2023.

“North America was the largest region in the buy now, pay later market in 2023. Asia-Pacific is expected to be the fastest-growing region in the forecast period,” the report stated.

This past fall, New York Fed economists warned of the financial dangers behind BNPL.

“We cannot dismiss the potential risks of overextension, whereby frequent use of BNPL funding leads to excessive debt accumulation over time, affecting a consumer’s ability to meet non-BNPL obligations,” they wrote.

“Also concerning in this regard is that BNPL might be enabling consumers to spend (and borrow) more than they otherwise would, rather than simply shifting purchases to a new payment platform.”

Lower savings, more credit card debt, and another tool to spend money consumers do not have could spell trouble in an economy that could still endure higher interest rates than it had become accustomed to for the past decade.