Americans have spent their savings. Economists worry about what comes next

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Americans saved quite a bit of money during the pandemic: $2.1 trillion worth, to be exact.

That extra cushion meant that consumers kept spending in the years that followed and the economy remained robust despite rising interest rates and persistent, though gradually decreasing, inflation.

But now that extra spending money is gone, economists are concerned about what comes next.

What’s happening: The most recent estimates of excess pandemic savings in the US economy have turned negative, according to Hamza Abdelrahman and Luiz Edgard Oliveira, economists at the San Francisco Federal Reserve.

That means many Americans have more debt than savings and suggests “that American households fully spent their pandemic-era savings as of March 2024,” they wrote in a recent report.

Consumer spending plays a crucial role in driving economic growth in the United States, and it has shown remarkable strength over the past two years. But now that excess savings have now dwindled to nothing, that could hurt spending and spell trouble for the American economy.

Alarmingly, debt is also accumulating. Chicago Federal Reserve President Austan Goolsbee said last month that while consumer debt levels aren’t yet “especially” high, the Fed is concerned about the rate of consumer delinquencies, or missed or late payments on expenses such as auto loans, credit card bills and rent.

“If the delinquency rate of consumer loans starts rising, that is often a leading indicator for, ‘things are about to get worse,’” he said at a moderated panel hosted by the Society for Advancing Business Editing and Writing.

Real GDP — a broad measure of the US economy — rose just 1.6% annualized in the first quarter of the year, coming in well below economist forecasts. Some analysts are already drawing down their expectations for growth this year.

Fitch ratings wrote in a recent report that it “expects growth will slow to a significantly below-trend rate later this year.”

Retailers are also getting nervous.

Consumers aren’t shopping like they used to and a slew of retailers in recent weeks have announced price cuts as they strive to pull people into stores and entice them to spend money on things like new clothes, decorative items for the home and arts and crafts or hobby kits.

Shoppers have pulled back for a year now as costs have risen higher than they were three years ago and as incomes failed to keep up, said Sarah Wyeth, managing director, retail and consumer with S&P Global Ratings.

Earnings calls expose worries: Shares of Tyson Foods, one of the largest meat companies in the world, plunged nearly 6% on Monday after the meatpacker reported that consumers were under pressure from inflation, high costs and unwilling to spend like they used to.

Starbucks also saw a large drop in its stock price after the coffee house cut its full-year forecast, citing a decline in sales and tough macroeconomic conditions.

McDonald’s CEO Chris Kempczinski noted that consumers were keeping their wallets closed in the company’s earnings call earlier this month. “Consumers continue to be even more discriminating with every dollar that they spend as they face elevated prices in their day-to-day spending which is putting pressure on the [quick service restaurant] industry,” he said.

The silver lining: The excess savings households built in 2020 and 2021 certainly played a role in bolstering the economy, said Abdelrahman and Oliveria, but it was “only one of many possible factors that helped consumers maintain robust spending levels.”

The US labor market, while cooling off a bit, still remains incredibly strong with unemployment rate still near historic lows. “A continuing strong labor market could help consumers maintain spending patterns similar to those observed recently, even without pandemic-era savings,” they wrote.

What comes next: Disney, Airbnb, Uber, Anheuser-Busch, Tapestry and Dillards all report later this week — investors will look for any comments about how consumer spending, or lack thereof, is altering revenue forecasts for 2024.

Warren Buffett compares AI to nuclear weapons in stark warning

Warren Buffett is worried about artificial intelligence.

At his annual shareholder meeting in Omaha, Nebraska, the 93 year-old co-founder, chairman and CEO of Berkshire Hathaway issued a stark warning about the potential dangers of the technology.

“We let a genie out of the bottle when we developed nuclear weapons,” he said Saturday. “AI is somewhat similar — it’s part way out of the bottle.”

The so-called Oracle of Omaha acknowledged to his audience that he has little idea about the tech behind AI, but said he still fears its potential repercussions. His image and voice were recently replicated by an AI-backed tool, he said, and they were so convincing that they could have fooled his own family. Scams using these deep fakes, he added, will likely become increasingly prevalent.

“If I was interested in investing in scamming, it’s going to be the growth industry of all time,” he told the crowd.

Berkshire Hathaway has started employing some AI in its own business to make employees more efficient, said Greg Abel, the expected successor to Buffett who runs Berkshire’s non-insurance operations, on Saturday.

“At times it displaces the labor, but then hopefully, there’s other opportunities,” said Abel, who didn’t reveal much detail about how the company plans to use AI.

Buffett also acknowledged that the technology could change the world for the better, but said he isn’t sold yet. “It has enormous potential for good and enormous potential for harm,” he said. “And I just don’t know how that plays out.”

The AI explosion has already transformed workplaces across the world and nearly 40% of global employment could be disrupted by AI, according to the International Monetary Fund. Industries from medicine to finance to music have already felt its effects.

Shares of companies associated with the AI boom have soared. Chipmaker Nvidia (NVDA) is up about 215% over the last 12 months, while Microsoft (MSFT) is up about 34%.

Shares of Berkshire Hathaway (BRK.A), have increased by 22% over the same period.

FAA opens new probe into Boeing, this time involving 787 Dreamliner inspections

Investigators are probing whether Boeing employees failed to perform some quality inspections on its 787 jets, the Federal Aviation Administration said Monday.

The investigation is to determine whether the inspections were conducted and “whether company employees may have falsified aircraft records,” the FAA said.

While the investigation takes place, Boeing employees will inspect the Dreamliners it has not yet delivered to airline customers and will develop a plan for the planes that are currently flying, the FAA said.

The FAA said Boeing “voluntarily informed us in April that it may not have completed required inspections to confirm adequate bonding and grounding where the wings join the fuselage on certain 787 Dreamliner airplanes.”

The Boeing executive overseeing the 787 program wrote in an internal memo — shared with CNN — that the issue was reported by an employee and is an instance of “misconduct.” He said it is not “an immediate safety of flight issue.”

The memo from Scott Stocker said the company determined that “several people had been violating Company policies by not performing a required test, but recording the work as having been completed.”

“We promptly informed our regulator about what we learned and are taking swift and serious corrective action with multiple teammates,” the memo said.

Read more here.