A Case of American Exceptionalism

We're blasting through our savings, putting us at odds with the rest of the world.

It’s October 13, 2023, and today, we have some new data looking at one way that Americans differ from the rest of the world in regard to their finances.

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A Case of American Exceptionalism

We’re blasting through our savings, putting us at odds with the rest of the world.

American exceptionalism. You know the term. I’m not sure how long it’s been around, but it garnered heavy use in the post-9/11 world – at least that’s when I remember first hearing it. In a nutshell, it’s meant to describe the inherent ways that Americans are, well, exceptional. How we’re just plain better, or at least different, from our counterparts around the world.

I’ve traveled a bit. I’ve been around the world. And while I think there are certainly some ways in which Americans are clearly different from people in other countries, I do think that we’re more or less the same, at least in most respects.

That said, there is some new research unveiling a new “Only-in-the-U.S. phenomenon,” published this week by the New York Fed. Specifically, the data shows that household spending among Americans increased, and we’ve “spent down” the savings that were accumulated during the pandemic. That’s much different from other countries, where households have, for the most, held on to the savings they accumulated.

As we all remember, many households were able to save some money as they weren’t going out and doing as much, and there were several rounds of economic stimulus. That helped Americans pad their savings – a good thing – but what we’re now seeing is that a whole lot of American households are now spending all that money away. That’s not to say they’re spending it on frivolous things; we simply don’t know. It’s more likely that price increases over the past two or three years have caused them to dip into their savings to make ends meet.

When your rent doubles or triples in a year, what else are you supposed to do?

The Fed report shows that blasting through our collective savings has propped up our GDP and economy relative to other countries. So, when you hear that the U.S. economy is on better footing than, say, some European countries, that’s true. But this helps explain why.

Here’s how the Fed report puts it:

“In the U.S. and Canada, stepped-up social benefit payments and other income support measures pushed incomes well above pre-pandemic trajectories, while similar measures in the euro area, United Kingdom, and Japan kept incomes near their trend paths. Meanwhile, consumption plummeted in all these economies.”

It continues:

“…Saving rates spiked in 2020-21 in the major high-income economies, ranging from a 6.5 percentage point increase in the euro area to a 10 percentage point jump in Canada relative to pre-pandemic averages. What’s more interesting for our present purposes is the divergence in saving behavior since 2022. While saving rates have fallen across the board relative to 2020-21, only in the United States has the rate dropped below its pre-pandemic average.

This divergence is quite stark. The average U.S. saving rate since 2022 is down some 2.5 percentage points from the 2015-19 average. Saving rates elsewhere range from slightly above pre-pandemic norms (0.5 percentage point higher in the euro area) to markedly above (3.5 percentage points higher in Canada). The same relative comparison holds in the latest quarterly data, with saving rates down from the 2015-19 average in the U.S. but up from the earlier period elsewhere.”

And here’s a visual:

Finally, the report notes that nobody’s quite sure why this is happening, at least in terms of savings behavior. As I’ve discussed, and as I’m sure you’ve seen, many Americans are feeling pessimistic about the economy – which should lead them to save more. But they’re not. I think higher prices do play a role here, but we’ll need to wait and see how things shake out in the coming years to see if this is one area in which the U.S. remains “exceptional.”

The push and pull of the American economy

I want to mention another element at play here, which is that we – all of us American consumers, and perhaps consumers across the world – are caught in the middle of a push-and-pull messaging war about money and the economy.

What I mean is that we’re simultaneously told we need to save more, but that we also need to keep spending to keep the economy growing and humming along. It’s confounding, and I’ve heard from more than a few people that it’s confusing. Of course, it’s not a cohesive message coming from one source, but it’s not out of the realm of possibility to browse the homepage of a financial news site and see an op-ed saying that people need to go to restaurants and support their local communities, and a headline right below it saying that some serious belt-tightening is in order.

I’m always reminded of when then-Texas Lieutenant Governor Dan Patrick suggested that people go shopping during the pandemic to save the state’s economy from potential recession – effectively putting their lives at risk. At the time, Patrick mentioned that only 500 people had died in Texas, out of 29 million. That number eventually swelled to more than 93,000.

However you feel about all that, I do think that his comments really hit home in that we have people in authority actively telling us to disregard our personal safety (or, more typically, sound financial footing) in order to spur the economy, but at the same time, other authorities (sometimes the same ones) criticizing fiscal irresponsibility. It’s a push and pull, and it can be frustrating to endure.

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Numbers and links

• The Great Mismatch: Sharing a story I wrote - job seekers are having a hard time finding jobs despite a strong labor market. (Fast Company)

• Can, Should, Won’t: Why we should reduce the budget deficit, but won’t, from Paul Krugman. (The New York Times)

• C’mon Jerome: The housing industry wants the Fed to stop raising interest rates because that would help the housing industry. (CNBC)

• Cheap Smells: A friend wrote this interesting story about the surprisingly high amount of interest in cheap, old perfume. (Bloomberg)