US households are burning through savings at an alarming rate, and could run out within months – Families struggle to feed their children

The US economy has been mostly beating expectations for two years now, thanks in large part to consumers eagerly buying just about everything that companies could sell them.

Much of this spending was powered by an estimated $2.5 trillion in excess savings that households accumulated due to federal pandemic aid and higher wages at work.

One result of this roaring consumer demand has been an increase in the price of goods and services, otherwise known as inflation.

But with inflation at a 40-year high this year, Americans are finding their monthly income isn’t going as far as it used to.

In April, the personal savings rate in the US ticked down to a 14-year low of 4.4%, according to the latest figures from the Commerce Department.

That’s half the rate it was in December, and roughly a third of where it was the year before.

Many households are already in negative savings territory, meaning they are increasingly tapping into their savings to cover purchases each month.

“This isn’t a normal recovery, and that fiscal stimulation is still in the pocketbooks of consumers,” JPMorgan CEO Jamie Dimon told investors at a conference this week. “They’re spending it, they’re spending at very strong levels.”

But, he added, the drawdown could mean that consumers have only about six to nine months of spending power left.

Dimon’s remarks echoed comments from PayPal CEO Dan Schulman last week at the World Economic Forum in Davos.

The combination of high spending and high inflation means Americans are burning through savings at a rate that could have them running out by the end of this year, he said.

Indeed, it’s already happening in the most vulnerable households. (Same in Canada…)

“We are already seeing a reduction in spending at lower-income levels for sure, and it’s moving up to middle-income right now,” Schulman said.

More than eight in ten US shoppers are planning to buy fewer things in the next three to six months, according to a recent survey from the market research firm NPD Group. The survey also found that consumers bought 6% fewer items in the first three months of 2022 than they did during the same period in 2021.

“There is a tug-of-war between the consumer’s desire to buy what they want and the need to make concessions based on the higher prices hitting their wallets,” NPD’s chief retail industry advisor Marshal Cohen said in a statement.

The slowdown in retail is already dragging on earnings from big box brands like Target and Walmart, and could have ripple effects throughout the economy.

For now, Americans are still spending (and planning to spend) a lot of money: airlines and hotels are reporting strong bookings, and the Commerce data indicate people are prioritizing services over products.

While there are promising signs of these larger economic challenges stating to improve, the next few months will be a delicate balancing act to get prices under control without causing them to crash.

“There’s storm clouds… it’s a hurricane,” Dimon said. “That hurricane is right out there down the road coming our way. We just don’t know if it’s a minor one or Superstorm Sandy.”

Nearly half of families with kids can no longer afford enough food 5 months after child tax credit ended
Without the child tax credit, Stormy Johnson has been skipping her own meals so her kids can eat.

Johnson, 45, works as a student support specialist in Preston County Schools in Kingwood, West Virginia. Before the monthly enhanced child tax credit payments lapsed in December, she received an additional $500 each month for her two children, Violet, 15, and Tristan, 14, whom she parents alone.

Without the extra money, and with increased prices due to inflation, Johnson’s budget is stretched thin.

“It’s been a struggle for sure,” said Johnson. “I’m just making sure that my kids have what they need, and I honestly think it’s taken a toll on my health physically.”

Families struggling
The child tax credit was expanded in 2021 through President Joe Biden’s American Rescue Plan.

The legislation boosted the credit to $3,000 from $2,000, with a $600 bonus for kids under the age of 6 for the 2021 tax year. Half of the credit was delivered in monthly payments, which ran from July 2021 to December 2021, in deposits of $300 for children under the age of 6 and $250 for those aged 6 to 17. Families received the second half of the credit in a lump sum when they filed taxes this year.

Now, five months after payments stopped, many families are struggling to make ends meet.

Nearly half of parents who used to get the checks now say they can’t afford enough food to feed their families, according to a May survey of 500 parents from Parents Together Action, a nonprofit. In addition to the increased costs of food, families are noticing rising prices of gasoline, child care and rent due to inflation, the survey showed.

More than 90% said that they are finding it harder to make ends meet right now, and more than 60% are struggling to satisfy their families’ basic needs. Beyond cutting back on things, most families said they’ve stopped saving for the future and have tapped into their emergency savings to stay afloat.

Others, like Johnson, have skipped meals so their kids can eat. Her family has also had to cut back on foods like chicken and fresh vegetables because they are too expensive, she said.

“I know I need to take care of myself to be able to take care of my kids,” said Johnson. “But at any given time if you give me the option to do for my kids or do for myself, especially when it comes to something like food, I’m not going to let my kids go without.”

The future of the child tax credit
It’s unclear if the child tax credit will be enhanced again anytime soon.

The monthly payments ended in December when Democrats failed to pass Biden’s $1.75 trillion economic plan, Build Back Better. Since, there’s been little movement on reinstating the credit, even as families continue to grapple with the coronavirus pandemic, high inflation and increased economic uncertainty.

“It feels totally inexcusable that Congress isn’t acting to reinstate those CTC payments, especially right now as families are struggling so much,” said Allison Johnson, campaigns director at Parents Together Action.

It’s also likely that the benefits seen from the enhanced credit will continue to erode. The expanded benefit showed positive results in improving food security for families with children, lifting kids out of poverty and even helping parents work more.

Without the benefit, it’s been estimated that 10 million children will fall back into poverty. [BI, CNBC]

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