Consumers navigate financial ups and downs

A confluence of factors was likely the reason behind the trend. By early 2021, some of the early pandemic shock had worn off, even though health concerns were still high. People were adjusting to lockdown measures. Vaccines were rolling out. And with limited spending avenues, consumers were padding their savings. Perhaps more importantly, historic government stimulus programs provided immense financial relief. In March 2021, the US personal savings rate spiked to 26.3 (roughly 4x prepandemic rates) and the US government announced the US$1.9 trillion American Rescue Plan that extended and built upon the Coronavirus Aid, Relief, and Economic Security (CARES) Act from the prior year.¹

While the trend seems counterintuitive, there are likely a few reasons why spending intentions have decoupled from financial well-being:

• A refocus on savings: Consumers saved at historic rates during the early part of the pandemic. But after months of leaning on savings, many are likely eager to see that extra zero on their bank statements again. As financial well-being recovers, consumers are taking the opportunity to refocus on saving—likely at the expense of spending more. In recent months, savings intentions grew at a higher rate than spending intentions (figure 6). The gap, however, is narrowing.
• Calculated consumers: A year of unrelenting sticker shock is likely to have some long-term effects on spending behavior. Spending confidence shows signs of healing, just not everywhere, and not at once. For example, spending intentions are up year over year for leisure travel (figure 6). And the trend makes good sense. After two years on the travel sidelines, many are eager to reconnect with lost vacations.²
• Passive protest: While inflation has eased, prices remain high relative to a year ago. Weakened spending intentions may be a form of protest to higher prices, particularly considering more than half of consumers believe companies are using this moment of high inflation to price gouge.³

Improvements in Americans’ financial health are always a welcome trend. But it’s particularly critical now as strong headwinds to economic growth emerge on the horizon and a potential recession looms. Consumer spending accounts for more than two-thirds of US GDP.⁴ With Deloitte’s US Economic Forecast still showing the economy slowing down substantially in the second half of 2023 and economic risks such as high borrowing costs already leading to banking strains and weighing on economic growth, any dip in consumer spending may just be enough to tip the economy in the wrong direction.⁵