Americans have seen an increase in their bank account balances compared to pre-pandemic levels, despite the high inflation rates. However, data from JPMorgan Chase Institute reveals that individuals are rapidly spending down the extra cash they had saved during the pandemic. Median account balances have dropped as much as 41 percent from their peak in April 2021. This spending trend is one of the reasons why the US economy has been able to avoid a predicted recession. Supported by a strong labor market, consumers have been able to keep spending despite rising inflation and borrowing costs.
Nevertheless, Americans remain cautious about their economic prospects as they face higher prices for essential goods and services. Many individuals have depleted their savings and anticipate their bank account balances continuing to decline. The widening gap in spending patterns between retirees and younger adults is also evident.
The president of the JPMorgan Chase Institute, Chris Wheat, suggests that although significant funds were deposited into people’s bank accounts due to the government’s response to the pandemic, the feeling of having less money has intensified, particularly due to inflation.
Despite concerns about inflation, American consumers are becoming more optimistic. After experiencing a period of low consumer sentiment and dissatisfaction with the Biden administration’s handling of the economy, consumer sentiment spiked in July to its highest level in over a year and a half. The labor market remains strong, incomes are high, and this has supported robust consumer spending.
Some individuals, like Tony Oxx, a transportation company manager, have been able to increase their savings significantly during the pandemic. With two raises in the past year and a higher overall pay, Oxx is saving 25 percent of his income. He has even been able to splurge on vacations for himself and his loved ones.
Earnings have outpaced inflation for four consecutive months, offering some relief to Americans. Average hourly wages have increased by 4.4 percent in the past year compared to a 3 percent increase in prices.
On the other hand, individuals like Nikki Cimino, a public-sector recruiter, have been steadily exhausting their savings during the pandemic. However, Cimino recently received a substantial raise, giving her a financial cushion and the ability to go on vacation without worrying about every penny.
An analysis of bank account data shows a pattern of increased balances during the pandemic, followed by a decline as people revert to pre-pandemic spending habits. While this pattern holds across income groups and races, there are still significant disparities. Black and Hispanic households experienced the largest increases in savings and checking accounts early in the pandemic but spent down their gains more quickly than White and Asian households.
Economists warn that if the economy falters, racial and income inequalities could worsen. The Black unemployment rate, which reached a record low in April, rose in the past month. A cooling labor market has also led to reduced working hours, particularly in low-paying service jobs, which could exacerbate the existing inequalities.
Amber Brandon, a cashier, is experiencing the impact firsthand. Her hours at the wholesale grocery chain have been significantly reduced, causing her paycheck to decrease from $500 to $120 per week. She now has to rely on her savings to cover basic expenses and has had to cut back on non-essential purchases.
In conclusion, despite an increase in bank account balances since the pandemic, Americans are rapidly spending down their savings. This trend has contributed to the avoidance of a predicted recession but has also left individuals cautious about their economic prospects. Inequalities persist across income groups and races, and economists warn that these could worsen if the economy faces further challenges.
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