Chart Talk: July 3rd 2024


 According to the National Bureau of Economic Research,“excess savings can be calculated by measuring the accumulated difference inactual de-annualized personal savings and the trend implied by data for theforty-eight months leading up to the first month of the 2020” and it, alongwith other data, is intended to predict the strength of the economy, given thatconsumer spending represents nearly seventy percent of Gross Domestic Product(GDP).

Up until now, the American consumer has showed remarkableresilience despite being negatively impacted by rising costs and we believethat the chart below goes a long way in explaining this strength.  In addition, keep in mind that nearly fortypercent of American homeowners have no mortgage and, of those that do, nearlysixty-percent have fixed rates below four percent, another reason why the Fed’stight monetary policy is working with more of a lag than during previouseconomic cycles.

 As is illustrated by the chart below, the Excess Savingsthat had been accumulated from the onset of the Pandemic, peaked at $2.1trillion in August 2021 and has since been depleted leaving many to wonder whatthe impact of this might be on economic activity.

Note:Excess savings calculated as the accumulated difference in actual de-annualizedpersonal savings and the trend implied by data for the 48 months leading up tothe first month of the 2020 recession as defined by the National Bureau ofEconomic Research.  Source: Bureau ofEconomic Analysis; Federal Reserve Bank of San Francisco; Hamza Abdelrahman andLuiz Edgard Oliveira

In our opinion, expect a measurable, but modest slowdown in consumer spending that will become apparent as we approach the election.  Whether or not the slowdown will be enough to warrant a Fed rate cut prior to the election remains in limbo.

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