Despite the Federal Reserve's most aggressive rate hike cycle in decades, the US economy has been able to maintain resilience, primarily due to strong consumption, which is one of the key pillars of the US economy.
According to a report released by JPMorgan on Thursday, as Americans deplete their savings, their spending power will greatly weaken, posing a headwind to the US economy.
JPMorgan Chase said that most Americans have exhausted their excess savings accumulated during the COVID-19 epidemic. In the coming months, almost everyone's financial situation may be worse than 2019.
The chief stock strategist of the bank, Kolanovich, said that 80% of consumers have exhausted the savings buffer they may have accumulated during the pandemic, accounting for nearly two-thirds of the total consumption.
"It is very likely that only the top 1% of consumers with the highest income will live better than before the pandemic," Koranovich wrote. He pointed out that there are increasing signs of credit card and car loan defaults, and there are also more and more corporate bankruptcy applications.
The following chart shows that by June 2024, except for the highest 1% income group, the inflation adjusted liquid assets (in the form of deposits and money market funds) of each income group will be lower than the levels in March 2020.
"By mid-2024, except for the top 1% of consumers with the highest income, all other consumers' economic conditions may be worse than before the outbreak of the pandemic," wrote JPMorgan analysts.
JPMorgan Chase previously estimated that excess savings reached a peak of $2.1 trillion in August 2021, driven by government stimulus checks. According to the company's calculations in October, this number has dropped to below $148 billion.
"Consumers are facing a tightening credit environment and rising interest rates, the gradual end of the stimulus and rescue plan during the COVID-19, the decline of excess savings and liquidity, and the inflation that has been above the average for many years." JPMorgan strategist wrote at that time.
Bank of America pointed out in a recent report that the economic difficulties of the millennial generation are particularly prominent. The older millennial generation - Americans born in the 1980s - not only faced the 2008 financial crisis, but also had to deal with the pandemic during critical years of their lives.
These two economic storms, coupled with rising childcare costs and persistent inflation, have made it difficult for this large group (the older millennials) to own their own homes, save for retirement, and easily spend money within their means.