This one chart...US savings - precaution or pent up demand?
When grey clouds fill the skies ahead, consumers tighten up their purse string. And the current economic climate is no exception. Unfortunately for economic growth, the consumer is one of the most important factors. To date, we have seen unemployment soar around the world, and at the same time fiscal interventions has caused personal savings to soar.
In today's chart we look at US Personal Savings - the chart below shows us the rate of personal savings since 1959. The savings rate has not only been the highest in the last 60 years, but also on record - surpassing that of WWII when consumers were cautious and had little ability to spend.
The big question is how much of this high savings rate is pent-up demand ready to be unleashed on the global economy when normality returns, and how much is precautionary ahead of uncertain times ahead.
In the near term much will depend on how governments manage the economic landing. Should we be heading down the trajectory of a 1930's depression like scenario, we may have already brought forward stock market returns from the future. Research suggests that stock market returns and inflation early in life affect risk-taking several decades later.
“I don’t know about you, but my parents were depression babies, and as a result, avoided the stock market and all things risky like the plague.”
Could COVID-19 and the subsequent stock market and economic shock trigger a similar effect on today's investors - a cohort of risk averse and non market participants? If so, it could imply that currently elevated savings are precautionary rather than representing pent-up demand, with negative knock on effects to the consumer spending outlook.