John Phipps: Chinese Consumers Save More Money Than Americans, Here's What it Means

The pandemic has been a gold mine of data and theoretical tests for economists – sort of a let’s-poke-it-with-a-stick-and-see-what-happens concept. The disruption of almost all economic activity here and around the globe provided all kinds of revelations that would not have been clear before.

One surprising result was a spike in savings rates. Here in the U.S. last April, we collectively saved a record 30% of our income. Saving money is a good thing, as all our parents repeatedly told us, but despite those admonitions, America has not been a land of savers, averaging around 7% to 8% over the last several years. Comparing to other countries, we just don’t tuck much money away.

John Phipps savings 1

The starkest contrast is with the Chinese who historically have saved nearly half their income. While saving is a personal virtue, when people save instead of spend, other people don’t get income. It’s a Tragedy of the Commons-type problem. What is good for individuals may not be good for the whole population.

This is one of China’s biggest problems in reducing their dependence on exporting – without the Chinese becoming more energetic spenders, exporting becomes a crucial market. The latest data show Chinese consumer spending at about 55% of GDP. In comparison, in the U.S. consumers provide about 70%.  

John ph savings 2

Looking back, it is obvious when you’re not going out, most face-to-face retailing slows drastically. Even the pickup in online retail couldn’t overcome this spending collapse. We’re feverishly studying why. Being cooped up, fear of the future, and especially the end of going out to eat or travel undoubtedly contributed. There are probably other factors. At any rate, the American public has stashed away unprecedented amounts of wealth. The savings rate has dropped back to lower levels but the money the government poured into the economy – like the PPP program – didn’t all get spent. It undoubtedly prevented a severe recession.

John Phipps chart 3

Meanwhile Americans have accumulated about $2.7T in what are called excess savings. And we’re not alone. There is about $5.5T globally in similar holdings. This is new territory for economies and we’re not sure what this stash means for the future. Next week, I’ll explore what many economists think will happen to these savings and why, perversely enough, it may be a big headache for some time.

 

Latest News

Two Crop Protection Partners Divest Postharvest Solutions Company
Two Crop Protection Partners Divest Postharvest Solutions Company

Sumitomo Chemical and Valent BioSciences have announced Pace International will become part of AgroFresh Solutions.

The Untold Farmer Stories Of Ukraine: Q&A With Howard Buffett
The Untold Farmer Stories Of Ukraine: Q&A With Howard Buffett

Farmer and philanthropist Howard Buffett held a fireside chat during the 2024 Top Producer Summit to share his experiences visiting the front line of Ukraine over the past two years.

From Farm to Fire: First Soybased Fire Suppressant Hits the Market
From Farm to Fire: First Soybased Fire Suppressant Hits the Market

Since the 1950s, fire departments across the country have used products containing dangerous PFAS to put out fires. But the United Soybean Board has announced a greener alternative made from soybean meal.

Smartwyre Launches New Data Insight Tool
Smartwyre Launches New Data Insight Tool

Grower Compass is a web interface that uses past data to help retailers better understand their customers and business opportunities.

Ferrie: In Dry Soils, Is It Better to Use Anhydrous and Strip-Till or a Zone Builder?
Ferrie: In Dry Soils, Is It Better to Use Anhydrous and Strip-Till or a Zone Builder?

Based on fieldwork he's done so far, the farmer asks, “Am I drying out the soil early in what looks to be a dry year? Or, am I making the soil more fit so roots can go down as they should?”

Telus Explains Proagrica Acquisition, The Future of Digital Ag Platforms
Telus Explains Proagrica Acquisition, The Future of Digital Ag Platforms

As Chris Terris, VP and Global Head, Animal Agriculture & M&A Growth at Telus Agriculture & Consumer Goods, explains, this acquisition’s complexity led to how the integration unfolded.