A Penny Saved is a Penny Earned
March 13, 2025
The U.S. personal savings rate, which depicts personal savings as a percentage of disposable income, increased to 4.6% in January 2025 from 3.5% in December 2024.1 While this marks the highest level of savings since last June, at which time the savings rate was 4.8%, it remains well below the long-term average of 8.4% and more than 100 basis points below the more recent 2013-2019 average of 5.9%.2
The savings rate peaked in excess of 30% in 2020 and remained elevated through mid-2021 amid COVID-19 restrictions and social distancing — which limited consumer spending — coupled with government stimulus.3 The Federal Reserve reported that U.S. households accumulated approximately $2.3 trillion in savings during that time.4 Since then, however, the savings rate has retreated, flirting with historic lows experienced in the years leading up to the Great Recession. This lower personal savings rate helped the economy to remain robust over the past few years in the face of inflationary pressures and higher interest rates.
While the recent savings rate is relatively low, it has been influenced by a unique set of circumstances that, taken together, make it less comparable to historical rates. One factor to consider is the level of stimulus injected into the system in 2020 and 2021. The extraordinary savings during that period may have allowed people to spend a higher percentage of their earnings in the subsequent years. Additionally, employment has been robust in the post-COVID-19 era, which may compel individuals to feel more confident about spending. Even with the most recent unemployment print ticking up to 4.1%,5 we are still well below historical averages over the past 20 years.6 Also, the strength in the stock market and increased home values may cause individuals to feel wealthier and, therefore, more comfortable spending a larger portion of earnings.
Key Takeaway
The personal savings rate provides insight into consumer behavior and financial well-being. Recent figures rank among the lowest on record. With last week’s reports indicating that planned February layoffs were the highest of any February since the Great Recession,7 along with a decline in equity markets, it will be interesting to see if these factors lead to a noticeable shift in the savings rate in the coming months.
Sources:
1-3FRED Economic Data – Personal Saving Rate; March 2025
4Board of Governors of the Federal Reserve System – Excess Savings during the COVID-19 Pandemic; 10/21/22
5U.S. Bureau of Labor Statistics – Employment Situation Summary; 3/7/25
6U.S Bureau of Labor Statistics – Civilian unemployment rate; March 2025
7Challenger, Gray & Christmas, Inc. – Job Cuts Surge on DOGE Actions, Retail Woes; Highest Monthly Total Since July 2020; 3/6/25
The material provided here is for informational use only. The views expressed are those of the author, and do not necessarily reflect the views of Penn Mutual Asset Management.
This material is for informational use only. The views expressed are those of the author, and do not necessarily reflect the views of Penn Mutual Asset Management. This material is not intended to be relied upon as a forecast, research or investment advice, and it is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy.
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