Covid’s Revenge Spending Era Is Finally Over; What That Means For The Economy

A Note From Patricia:

Hello and welcome to Forbes Advisor’s Weekly Brief, where each week we dive into the realities of consumer finance and empower you with knowledge to help make your financial journey easier.

The Covid-induced spending spree seems to be over. 

As the United States emerged from the pandemic, which was officially declared over by the World Health Organization (WHO) in May 2023, many folks had higher-paying jobs, extra money in their pockets from a savings surge, and a newfound desire to get out of the house and live life to the fullest.

However, economists say that time is coming to an end as consumers start to feel the burn of a higher cost of living and a cooling job market—with some saying it means the economy is heading for a slowdown. 

In this week’s brief, we discuss how slowed consumer spending could impact the economy and offer helpful tips on how to prepare your finances for economic uncertainty.

Sincerely, 

Patricia Louis

Editor, Forbes Advisor

Covid’s Revenge Spending Era Is Finally Over; What That Means For The Economy

Post-pandemic, consumers began shelling out money on non-essential items or experiences they missed out on while stuck indoors—a trend that ran nearly three years after the first widespread Covid vaccination campaign.

According to the Federal Reserve Bank of San Francisco, Americans were sitting on an estimated $430 billion in excess savings leftover from the pandemic as of late fall last year. Some of this money was spent on things like live entertainment and international travel, which was up 30% last year. But the high times may be ending.

The Bureau of Economic Analysis’ Personal Income and Outlays report for April 2024 shows that real disposable personal income (DPI) and real personal consumption expenditures (PCE) were down 0.1% in April from March. This is partly due to lingering inflation and people running out of their Covid-era savings. 

And while a dip of one-tenth of a percent sounds meager, it’s being closely watched by economists. Consumer spending accounts for nearly 70% of gross domestic product, the most widely accepted measure of the U.S. economy and its growth—so if spending is decelerating, that could mean the recession that economists say has been imminent since 2021 looms now.

While no one is certain of what the future may bring—or when—it's wise to take note of these warning signs and buckle up for economic uncertainty. Here are a few things you can do to prepare your finances for an economic downturn.

Pay closer attention to your money: If you’ve been taking a laid-back approach to your money, creating (or resurrecting) a budget should be first on your to-do list. Consider using one of the best budgeting apps to keep track of your spending and break it down for you easily.  

Start saving: Stashing cash before you need it is well worth the effort. Try trimming down your expenses, such as minimizing subscriptions or shopping around for new car insurance or internet providers. Consider putting your savings in a high-yield savings account to earn interest and grow your balance.

Stay the course with investments: The worst thing you can do is pull your money out of the market during a recession; by cashing out during an economic downturn, you’re solidifying your losses rather than waiting for the upswing. 

For more information on how to prepare and what to do during a recession, here are some other helpful resources: 

• Our Best Money Tips For A Recession 
• 4 Tips For Strengthening Your Finances Before A Recession Hits
• How To Invest During A Recession  

Here’s what else is going on in the news this week:

• Home Buyers With VA Loans Will Be Allowed To Pay Real Estate Commissions Under New Policy The Department of Veterans Affairs has announced it will allow home buyers with a VA-guaranteed mortgage to pay their real estate agent a commission. 
• June Fed Meeting: Fed Continues To Walk The Inflation Tightrope And Holds Rates Steady In a largely anticipated move, the Federal Open Market Committee opted not to change the federal funds rate. It maintained its current target range between 5.25% and 5.50%. 
• Car Insurance Rates Jump 20.3% From A Year Ago But Show Signs Of Easing Auto insurance premiums climbed 20.3%, year over year, in May according to the latest Consumer Price Index from the Bureau of Labor Statistics. However, the CPI report reveals car insurance rates dipped slightly—0.3%—from April.