U.S. savings rate hits record 33% as coronavirus causes Americans to stockpile cash, curb spending

By Maggie Fitzgerald of CNBC. Excerpts:

• The personal savings rate hit a historic 33% in April, the U.S. Bureau of Economic Analysis said Friday.
• “There is a tremendous uncertainty and virus fear that is lingering and that is restraining people’s desire to go out and spend as they normally would,” said Gregory Daco, chief U.S. economist at Oxford Economics. 
• With the U.S. consumer accounting for more two-thirds of the economy, the economic recovery depends on whether the increase in savings is a result of shutdowns or structural changes in consumer habits, analysts said. 
• The increase in savings came as spending declined by a record 13.6% for the month.

"The coronavirus crisis has Americans hoarding more money than ever as widespread fear paralyzes consumer spending habits.

The personal savings rate hit a historic 33% in April, the U.S. Bureau of Economic Analysis said Friday. This rate — how much people save as a percentage of their disposable income — is by far the highest since the department started tracking in the 1960s. April’s mark is up from 12.7% in March."

"The previous record savings rate was 17.3% in May 1975, according to FactSet. The savings rate was elevated above 13% throughout most of the early 1970s. The increase in savings came as spending declined by a record 13.6% in April."

Has the pandemic changed tastes (which change demand)?

See Worry, haste, retail therapy: What have we bought and why? by Leanne Italie of the AP.

It looks like some of it is an income increase (for some) who got refunds on things that got cancelled. Excerpts:

"The panic buying, the over-buying, the emotional buying aren't unique to this extraordinary world-shaking event, but it's the kind of world-shaking event that sent the world home with plenty of anxiety and few shopping options other than the online kind.

In the U.S., retail sales tumbled by a record 16.4% from March to April as business shutdowns caused by the coronavirus kept shoppers away, threatened stores and weighed down a tanking economy. The Commerce Department reported that a long-standing migration toward online purchases accelerated, posting an 8.4% monthly gain.

Measured year over year, online sales surged 21.6%.

“It's panic on lots of levels,” said Wendy Liebmann, CEO of WSL Strategic Retail, a global consulting firm specializing in retail strategy and shopper insights. “All of the traditional buying patterns are tossed up in the air.”

She called it “shopping chaos” with no anchors. And the chaos has come with some unique calculus.
One couple got to skip their last preschool payment due to lockdown and purchased the couch of their dreams."
"That “instant” feeling is key to much of the coronavirus shopping, said Jeff Galak, associate professor of marketing at Carnegie Mellon University’s Tepper School of Business.

“Shopping as therapy has been shown to reduce negative moods and boost overall happiness," he said. “The big downside, however, is that such relief is very short-lived. That good feeling very quickly dissipates.”

Galak said some research points to “shopping while bored” as a variation with less emotional payout.

“Browsing for things that one doesn’t need fills the time and then clicking `buy now' just naturally follows,” he said. “Consumers may find themselves on page 20 of a search result for a new pair of shoes, a place that when engaged and not bored, they would never reach.”"

When demand for one good falls (gasoline and ethanol) leads to an increase in price for other goods (beer and soda)

See A Coronavirus Chain Reaction: Less Driving Means Less Fizz for Sodas: Carbon-dioxide output is down, as the drop in gasoline demand slows fuel production by Vipal Monga of The WSJ.

I don't think I have heard of anything like this before. If the supply of carbon dioxide (an ingredient in soda and beer) falls, its price will rise. Then supply will decrease for beer and soda since the price of a resource used to make it has increased.

Excerpts:

"As the summer season approaches, consumers might end up paying more for their beer and soft drinks. The reason? The cost of the bubbles in the drinks is going up."

"Carbon dioxide is a byproduct of ethanol, which by federal mandate is mixed into gasoline to help it burn more cleanly. But fewer people are driving because of the Covid-19 lockdowns, and demand for gasoline has plunged, prompting ethanol plants to shut down. That has put pressure on the source for roughly 40% of all industrial carbon dioxide produced nationwide—a key ingredient for soft drinks and beers.

Carbon-dioxide production this year has fallen by roughly 30% from last year’s levels"

"A Coke spokeswoman said the North American drop in carbon-dioxide production is being balanced by less demand for soft drinks because many restaurants and sports stadiums are currently closed. “We do not foresee any concerns about supply at this time,” she said.

Bob Pease, president of the Brewers Association trade group, warned that brewers could soon start passing cost increases on to customers, especially as the return of restaurant demand in states such as Texas, Georgia and Wisconsin, which have eased lockdowns, strains gas supplies. “This shortage could become critical in short order,” he said."

We just had two straight months with the CPI falling at least 0.4% for just the fifth time since 1947

Seasonally adjusted data from the St. Louis Fed.

Here are the CPI numbers for the last 3 months

Feb.) 259.050
March) 257.953
April) 255.902

The drop for March was 0.42% while for April it was 0.795%.

Here are all the occurrences. We had three straight months in 2008. So that counts as two cases. Those all came in about the middle of the last recession.

Date	Change
Nov. 1948	-0.00617
Dec. 1948	-0.00455
Sep. 2006	-0.00491
Oct. 2006	-0.00444
Oct. 2008	-0.00860
Nov. 2008	-0.01771
Dec. 2008	-0.00823
Mar. 2020	-0.00423
Apr. 2020	-0.00795

A 0.7% or greater decrease for just one month has happened only six times since 1947. Three were in 2008, one in 1948 and one in 1949. The sixth is the one from this April.