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Economy

U.S. consumers have spent more than $1 trillion saved up during the pandemic

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U.S. consumers have made a healthy dent in savings stockpiles accumulated during the pandemic.

And this drawdown presents a challenge for the economy in 2023.

New data from JPMorgan Asset Management published Monday shows estimated “excess savings” from U.S. households now stand at $900 billion, down from a peak of $2.1 trillion in early 2021 and roughly $1.9 trillion at the beginning of last year.

These savings have been drawn down as the personal savings rate has fallen sharply from historic highs seen during the pandemic.

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The latest data on personal income and outlays from the BEA, released on December 23, showed the personal savings rate stood at 2.4% in November, down from a record high of 33.6% in March 2020.

Consumer savings accumulated during the COVID-19 pandemic have been more than cut in half. (Source: JPMorgan Asset Management)Consumer savings accumulated during the COVID-19 pandemic have been more than cut in half. (Source: JPMorgan Asset Management)
Consumer savings accumulated during the COVID-19 pandemic have been more than cut in half. (Source: JPMorgan Asset Management)

Stimulus programs rolled out during the pandemic saw a surge in the household savings rate, which typically floated in a range between 7% and 9% of income in the years before the pandemic.

Households saved more than 10% of their income in each month between March 2020 and May 2021, building a multi-trillion dollar stockpile of savings to run down in the future.

And that future is now.

As has been chronicled over the past two years, these accumulated savings for consumers have powered robust spending, even in the face of 40-year highs in inflation and a softening labor market.

But with no new stimulus programs imminent and the economy showing some signs of feeling the impact of the Federal Reserve’s aggressive rate hikes, the ability for U.S. consumers to power unexpected growth will likely to come to an end.

Writing after last month’s report on personal income, Oren Klachkin and Ryan Sweet at Oxford Economics said that “the historically low [personal savings rate] indicates households deployed more of their dry powder.”

Klachkin added: “We believe this tailwind will fade away next year.”

The exact speed, size, and scope of the economic impact of a slower drawdown in savings, however, remains a bit of a moving target.

In a piece previewing the U.S. economic outlook for 2023 last month, Ian Shepherdson at Pantheon Macroeconomics wrote: “The only reason for hesitating before forecasting a recession is that the private sector is still sitting on some substantial excess cash accumulated during the pandemic.”

Shepherdson noted the drawdown in savings began last spring, as gas prices weighed on consumers nationwide. By June 2022, the average price of gas topped $5 a gallon.

In Shepherdson’s view, it is likely the bottom 40% of earners have run down all excess savings accumulated during the pandemic. This suggest the pace at which consumers spend down their remaining stockpiles will slow, as those on the higher end of the income distribution have more scope to hold off drawing on savings to meet current obligations.

And while “excess savings” will likely remain part of the economic discussion in the new year, Shepherdson sees the most important driver of consumer habits coming back to the fore as the primary influence on spending in 2023: the labor market.

“The bigger problem for consumers next year likely will be the softening of the labor market,” Shepherdson wrote. “The boost to job growth from post-COVID rehiring has slowed over the past year, and can be expected to fade away altogether next year.”

 

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Economy

South Korea’s Export Decline Persists as Global Economy Weakens

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(Bloomberg) — South Korea posted a record trade deficit in January as exports weakened further, raising concerns the economy may fall into recession amid deteriorating semiconductor demand and persistently elevated energy prices.

The shortfall swelled to $12.7 billion, almost triple the month-earlier figure, as exports slumped 16.6%, data released by the trade ministry showed Wednesday. Shipments of semiconductors plunged 44.5%, while total imports fell 2.6%.

Sluggish exports were at the core of the Korean economy’s contraction in the final three months of last year and may persist for months to come as global consumption slows. Confidence among Korean firms that sell abroad is low and industrial production remains weak as manufacturers adopt a cautious outlook.

“The chance for another economic contraction has gotten greater,” said Park Sang-hyun, an economist for HI Investment & Securities in Seoul. “The deficit hurts not only companies’ bottom line but also consumer spending. It certainly weighs on the economy.”

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Citigroup Inc. forecasts a mild recession this winter in Korea.

Resilient exports were a key factor in the Bank of Korea’s confidence that the economy could withstand policy tightening over the past 18 months. The trade numbers bolster the case for an interest-rate pause when the board meets later this month.

With the key rate now at 3.5% — the highest since 2008 — Governor Rhee Chang-yong increasingly sees economic concerns coming to the fore, while the bank wants to keeps policy tight to prevent inflationary pressure from rebuilding.

Korean exports are a major barometer of global trade as the nation produces key items such as chips, displays and refined oil that straddle supply chains. It is also home to some of the world’s largest semiconductor and smartphone makers, and a major downturn is hurting those industries.

SK Hynix Inc., Korea’s second-biggest chipmaker, reported its biggest quarterly loss on record on Wednesday, a day after Samsung Electronics Co. said its operating income dropped by 97% from a year earlier.

The world economy is slowing as a result of rising rates to tackle inflation, as well as Russia’s ongoing war in Ukraine that has fueled oil and food prices. China is also yet to fully recover from its Covid restrictions.

China’s downturn and the drop in semiconductor prices were among major factors hurting Korean trade’s bottom line, along with an increase in energy imports, Finance Minister Choo Kyung-ho said in a statement.

Global demand is likely to remain subdued this year while household debt, fiscal tightening and high borrowing costs constrain Korea’s domestic recovery, Fitch Solutions said in a note.

A turnaround for Korean exports may come from China if the world’s second-largest economy succeeds in reviving its growth engine after an extended period of Covid restrictions. China is the largest buyer of Korean goods that mostly get reassembled to be shipped elsewhere.

Korea’s trade balance is likely to improve in coming months as China reopens, Finance Minister Choo said. Economic activity in China expanded in January as the peak of the Covid exit waves likely passed, Pantheon Macroeconomics said.

Trade is a vital component of Korea’s economy and has far-reaching implications for jobs and consumers. The country’s jobless rate climbed to 3.3% last month from 2.9% in November while gains in employment softened.

–With assistance from Myungshin Cho.

(Adds comments from economist and minister, as well as chipmaker earnings.)

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Economy

Canada’s economy slowed down in November, but still eked out growth

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The Canadian economy grew by 0.1 per cent in November as higher interest rates began to slow spending toward the end of the year.

Canada’s gross domestic product expanded by 0.1 per cent in November, Statistics Canada reported Tuesday. (Ben Nelms/CBC)

The Canadian economy grew by 0.1 per cent in November as higher interest rates began to slow spending toward the end of the year.

Statistics Canada’s preliminary estimate for December indicates the economy stayed flat, suggesting the economy grew at an annualized rate of 1.6 per cent in the fourth quarter.

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The economy grew at an annualized rate of 2.9 per cent in the third quarter.

In November, growth in real domestic product was driven by the public sector, transportation and warehousing and finance and insurance.

Meanwhile, construction, retail and accommodation and food services contracted.

Statistics Canada says economic growth for 2022 was an estimated 3.8 per cent.

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Economy

Canadian economy grew 0.1% in November, likely was unchanged in December – The Globe and Mail

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People shop for produce at the Granville Island Market, in Vancouver, on July 20, 2022.DARRYL DYCK/The Canadian Press

Canada’s economy expanded slightly in November, matching expectations, and likely stalled in December, data showed on Tuesday, broadly in line with the Bank of Canada’s expectations for the economy to flatline during the first half of this year.

November gross domestic product (GDP) rose 0.1 per cent in November, Statistics Canada said, and was likely flat in December, according to a preliminary estimate.

“The flash estimate for December suggested that there was little if any growth during the final month of the year. That aligns with our view that the economy is likely stalling,” said Royce Mendes, head of macro strategy at Desjardins.

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In December, gains in the retail, utilities, and public sectors were offset by decreases in sectors including wholesale, finance and insurance, Statscan said.

Annualized gross domestic product likely gained 1.6 per cent in the fourth quarter, above the Bank of Canada’s 1.3 per cent forecast. If the flash estimate proves correct, the economy expanded 3.8 per cent in 2022 from the previous year, above the central bank’s 3.6 per cent forecast.

“Today’s data show that the Canadian economy continues to cool, but not as yet shift into reverse, in the face of rising interest rates,” Andrew Grantham, senior economist at CIBC Capital Markets, said in a note.

The Canadian central bank has raised its key interest rate at a record pace of 425 basis points in 10 months to cool the economy and bring inflation down. After the latest rate hike last week, the Bank of Canada said it would likely hold off on further increases.

Last week, the central bank said the economy would stall and could tip into a mild recession during the first half of this year.

“The overriding message is that the economy is just managing to keep its head above water, which squarely fits with the Bank of Canada’s view,” said Doug Porter, chief economist at BMO Capital Markets.

Canada’s service-producing sector grew 0.2 per cent in November, buoyed by a third straight month of gains in transportation and warehousing. The goods-producing sector contracted 0.1 per cent in November, dragged down by declines in the construction and manufacturing industries.

The Canadian dollar was trading 0.2 per cent lower at 1.3405 to the greenback, or 74.60 U.S. cents, after clawing back some of its earlier decline.

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