Personal Saving Rate Rises for First Time Since April

Woman wearing protective face mask doing window shopping while standing on street in city

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Consumers had money to burn in December, but seemingly nowhere to spend it. Americans pocketed government benefits but were hindered in making purchases as new coronavirus restrictions took hold, government estimates showed Friday. It was the first time since April that the personal saving rate has gone up.

As a percentage of disposable income, personal savings rose to 13.7% in December from 12.9% in November, marking the first increase in eight months, according to the Bureau of Economic Analysis’s (BEA) monthly report on personal income and outlays.

While the savings rate had been falling since an April peak of 33.7%, the trajectory changed in December as a rise in COVID-19 cases and new pandemic restrictions again kept people at home. With incomes rising faster than spending, people saved more. Before the pandemic, the savings rate hovered around 7%-8%.

“The slowdown in spending in December partially reflects the continued effects of re-introduced restrictions as COVID-19 cases rose in December,” economists at First Trust Advisors wrote in a commentary Friday.

President Joe Biden has proposed a $1.9 trillion rescue plan to help households through the pandemic and keep the economy going. But going forward, wage growth—enabled by COVID vaccines allowing business to resume—will be better for the economy than government stimulus, First Trust said.

“It takes getting back to normal—getting back to work—to fully recover from the wounds of 2020; stimulus has and will continue to be a band-aid to tidy over until the real healing takes place,” they wrote. 

Increases in wages and government benefits contributed to a $116.6 billion, or 0.6% increase, in personal income, to $19.6 trillion, the BEA’s data showed. Private sector wages rose slightly, reaching an all-time high in December. At the same time, consumers pared back their spending 0.2%, cutting back on recreational items and food.