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Writer's pictureBy The Financial District

Shrinking Cash Cushions May Pinch U.S. Consumer Spending

Middle- and low-income U.S. families now have significantly fewer liquid resources, like bank deposits, than they were on track to have before the disruptions of the COVID-19 pandemic, creating financial strains that pose a risk to consumer spending, the backbone of the economy, Ann Saphir reported for Reuters.


"Smaller financial cushions and heightened credit stress for households at the bottom 80% of the income distribution pose a risk to future consumer spending growth," wrote economists Hamza Abdelrahman, Luiz Edgard Oliveira, and Adam Shapiro.



Research published by the Federal Reserve Bank of San Francisco showed that for the top 20% of households by income, liquid assets — including cash and funds in savings, checking, and money market accounts — rose sharply in 2020 into early 2021.


They then dropped gradually and are now about 2% below what would have been expected without the pandemic shock.



But for the rest of American households, those liquid assets rose less sharply, and the excess was depleted earlier and is now about 13% lower than the projected path prior to the pandemic.


At the same time, credit card delinquencies among these middle- and low-income families rose earlier, faster, and to "notably higher" rates than for high-income families.



"Smaller financial cushions and heightened credit stress for households at the bottom 80% of the income distribution pose a risk to future consumer spending growth," wrote economists Hamza Abdelrahman, Luiz Edgard Oliveira, and Adam Shapiro.




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