WASHINGTON–As many credit unions are becoming aware, those Americans who can do so are stashing away money in savings in response to nervousness over the economy.
Not surprisingly, the savings trendline is coming at the same time the CFPB has released new data showing a big decline in credit applications.
According to new data released by the Bureau of Economic Analysis, the savings rate surged to 13.1% in March, up from 8% in February. It marks the highest savings rate by Americans since November 1981. In all, Americans had $2.17 trillion in savings last month.
The deposits are pouring money into savings even though deposit rates are yielding close to nothing.
During a press conference, Federal Reserve Chairman Jerome Powell was asked about what savers should do given the rock-bottom rates. Powell conceded that for people "really just relying on their bank savings account earnings, you're not going to benefit from low interest rates. But we have to look out for the overall economy. Low interest rates support employment, they support economic activity. And those are our mandates.”
Navy FCU Economist’s Take
The savings inflow is coming even though federal government data for March show personal income was down 2%, and tens of millions have now filed for unemployment benefits even though many state systems have been overwhelmed and unable to process the applications.
Offsetting the lower incomes has been significantly lower spending during the pandemic.
Prior BEA data show the savings rate briefly soared to a peak of 12% in December 2012.
"The savings rate had risen dramatically in the last couple years already," said Robert Frick, corporate economist with Navy Federal Credit Union in a tweet. "Speculation is people were bracing for the next recession. I don't look for silver linings, but the more people bank, the better the recovery.”
CFPB: Big Decline in Credit Apps
Separately, the CFPB is reporting consumer credit applications declined substantially in March. Applications are measured by the number of credit pulls or “hard inquiries” that lenders perform when a consumer applies for new credit, according to the agency.
The CFPB report found that between the first and last week of March, auto loan inquiries dropped by 52%, new mortgage inquiries dropped by 27%, and revolving credit card inquiries declined by 40% compared to usual patterns seen in the data in earlier years. Additionally, the drops are significantly more pronounced for consumers with higher credit scores, consistent with the possibility that higher credit score consumers have more flexibility in either their credit needs or the timing of their credit needs, the CFPB said.
Big Geographic Differences
“The report also found significant geographic variation in the decline in inquiries, with states in the South and Mountain regions experiencing smaller drops and the Northeast and California experiencing the largest drops,” the report found. “The report relates the drop in inquiries to two variables measuring the effects of the pandemic at the state level: the COVID-19 case rate and the share of workers filing for unemployment insurance benefits in the last weeks of March. The report found a strong correlation between the decline in inquiries and the COVID-19 case rate, as well as the decline in inquiries and the unemployment insurance claims share, for some categories of credit.”
The report is based on the Bureau’s Consumer Credit Panel, a longitudinal, nationally representative sample of approximately five million de-identified credit records from one of the three nationwide consumer reporting agencies.
To read the report click here.