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Consumers Plan To Open Their Wallets This Holiday

With the personal savings rate at its highest in nearly two years, climbing from 4.8% in March to 5.6% in September, Americans aren’t fighting the urge to spend.

But the Commerce Department says the savings rate fell to to 5% in September and remained the same in October. Instead of saving, consumers have reportedly spent more than previously thought: Spending has been up 2.2% in the third quarter, which is up from a prior estimate of 1.8%.

But there's good news for retailers: Consumer sentiment is at its highest since July 2007, before the recession, according to the Thomson Reuters/University of Michigan index. Consumers are more confident and are spending more, and lower gasoline prices have freed up space within family budgets.

Chris Christopher, director of consumer economics at IHS Global Insight says, “Everything is in the works right now to have a pretty strong holiday sales growth rate. We do feel that excessive saving at this point would not be a good thing.”

The savings rate usually experiences a decline when net worth rises, so the current savings rate represented may be somewhat confusing. According to the Federal Reserve, earlier this year, the net worth of United States households reached a record $81.5T, with much of it held by the wealthiest consumers.

An economist from RBS Securities, Michelle Girard, predicts that the savings rate should be lower, a rough 4%, based upon the economy's net worth as well as interest rates.

Girard says that a savings rate above this level may signify consumer under-spending, and they have now have room within their budgets to kick up spending a bit without tapping into their savings.

Some economists prefer consumers with lower savings, with the idea that it would slow down consumption rates, while other economists would like to see a higher saving rate to help push and advocate for economic investments, leaving U.S. households in better preparation towards the future. Either way, both sets of economists would prefer a stable savings rate.

The Federal Reserve generally urges borrowing with its low interest rates, but Federal Reserve Chairwoman Janet Yellen has also stressed the importance of families also maintaining a precautionary savings.

In the 2000s, the savings rate plummeted as the Commerce Department reported a savings rate that fell to 1.9%, leading consumers to borrow more freely, even tapping into home equity to allow for more spending. Towards the end of the boom, many families were left with little financial support.

Chief U.S. economist at Capital Economics, Paul Ashworth, says, “It’s a different regulatory regime,” with savings rates currently around 5%. Ashworth also indicated that a new credit bubble is “the one thing everyone is looking for, so it’s the one thing that’s just not going to happen.”

Instead, many households are working towards year-end in financial status. In more than 6 years, the unemployment rate is reportedly at its lowest and wage gains have steadily increased, increasing faster than the rate of inflation.

Also, the massive decline in gasoline prices currently represent and result in a major relief for families across the United States. AAA reports that the national average gas price fell to $2.79 per gallon last Thursday, which was down from $3.03 a month ago. The new price is also 50 cents below the reported average of $3.28 a gallon, the same time last year. Deutsche Bank currently estimates that for every 1-cent decline in gasoline prices, $1 billion is freed up for U.S. consumers to spend.

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NEW PYMNTS STUDY: LEVERAGING THE DIGITAL BANKING SHIFT – SEPTEMBER 2020  

The September 2020 Leveraging The Digital Banking Shift Study, PYMNTS examines consumers’ growing use of online and mobile tools to open and manage accounts as well as the factors that are paramount in building and maintaining trust in the current economic environment. The report is based on a survey of nearly 2,200 account-holding U.S. consumers.

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