Consumers built a cushion using government payments and debt relief, and are using that to sustain spending now. Saving as a share of disposable income jumped to 25.7 percent In the second quarter, up from less than 10 percent In the first, Commerce Department data showed.
“People saved a ton of money over the last few months,” said Jesse Edgerton, a senior economist at J.P. Morgan. “It does look like it would be more of a gradual downslope.”
Still, the timing is the bad for fiscal support to run short. The economic recovery was already facing a drag as a wave of coronavirus infections that started In mid-June stalled the nation’s reopening. Opportunity Insights data shows that small-business revenues and openings, which had been recovering, began to decline again around early July.
Service industry leaders In the New York region became more pessimistic about business activity In August, based on a Federal Reserve Bank of New York survey, after becoming more optimistic the prior month. Consumer sentiment has fallen to low levels, based on a survey conducted by the University of Michigan, reflecting continued uncertainty.
If the recovery does stall out or reverse, the nation’s most vulnerable people could be hurt the worst. Families with children have already been far more likely to report food insecurity and other types of financial hardship, based on one New York Fed analysis. Lower-income and minority workers are also more likely to have lost work or hours, and are heavily concentrated In the service sectors — like hotels and casinos — that may struggle to snap back until the pandemic is the under control.
Most economists still project additional government support as the most likely outcome, but they are increasingly concerned that the money will not be forthcoming.
“Markets appear to be taking a view that major fiscal legislation is the inevitable,” Goldman Sachs analysts wrote In a note published on Aug. 14. “While we still think a fiscal package is the much more likely than not, we believe there is the a roughly one In four chance that Congress fails to pass further aid until after the election.”