Consumers Have Cash and Confidence

Latest stats on the consumer economy betray a year of hair-on-fire headlines about inflation and recession

There ought to be a lot of red faces today within the scrum of economic pundits and bean counters who have been jabbering all year that inflation and the lingering effects of the pandemic would inevitably drive the US economy into a ditch. The results won’t be known until next year, but this might turn out to be a December to remember for how misguided they’ve been.

In just the last week or so we learned from the Federal Reserve that, in spite of a personal US saving rate that is scraping along at a 17-year low, consumers are sitting on a pile of spendable cash. The Fed’s calculation of “checkable deposits” for households and nonprofit organizations — a measure of cash-on-hand — hit an all-time high of $5.12 trillion at the end of the third quarter, a stunning 20% surge from the end of 2021.

It would appear that consumers have cut back on savings because they can. All that cash sloshing around has helped consumers maintain an aggregate net worth that set an all-time record in the first quarter of this year.

At the end of the third quarter, it was more than 25% higher than it was three years ago, just before the global Covid-19 shutdown. With household liabilities up about 20% during the same period, the balance sheet of American households would seem to be robust.

With unemployment at a historic low, it’s no surprise that Americans are growing more confident about job security, according to a bi-weekly Forbes Advisor-Ipsos poll. Although the reading is well below the pre-pandemic level, it has been rising with fewer people reporting that they know someone who has been laid off.

The Conference Board, a global economic think tank, recently reported that “consumer confidence bounced back in December, reversing consecutive declines in October and November to reach its highest level since April 2022.” A similar trend appears to be developing in the EU.

Inflation? Good news there, as well.

The real-time inflation index from Truflation, an independent inflation data aggregator, found that the latest year-over-year rate is just under 6%, down from 7.4% two months ago.

Finally, and most significantly, the US economy grew in the third quarter by a healthy 3.2%, driven by strong exports and healthy consumer spending.

As someone who is in the business of understanding consumers’ attitudes and forecasting economic outcomes, the constant drumbeat of impending doom may dominate the news, but consumers aren’t listening. They’re too busy shopping!