North Raleigh Today

With talk of a recession gaining momentum, economists are warning Americans about tough times ahead — not just because of the downturn, but because inflation has eaten through much of what people set aside during the pandemic.

Moody's Analytics is reporting that people are dealing with the start of the recession by dipping into their savings. The company says that more than $114 billion in pandemic savings have been spent. 

The nation saw a surge in the savings rate during the COVID-19 pandemic as people squirreled away the bulk of their paychecks and stimulus checks.

“There wasn't a whole lot to do for a good chunk of 2020 and even 2021 for a lot of folks,” Forbes Dixon, an economist at Wake Technical Community College, said in a recent WRAL report. “What are you going to do with [the money]? A lot of people would just park it somewhere.” 

Personal savings rates in 2020 reached a record of 34%, government statistics indicated, but by May, it has dropped back to 5%, which is closer to the historical average. 

With the labor market tightening up recently, the country is likely to see higher unemployment. 

"It's not like a typical recession where you have high unemployment and deflation,” Dixon said. “It's more like the 1970s where there's high unemployment and inflation. And that's no fun. It's never fun, but that's even less fun.”

What makes it worse is that the tendency of late, when people have gotten raises, has been to use the extra income to boost their lifestyle, not to pad their savings.

As the recession gets a firmer foothold, he offered suggestions for staying ahead of the curve.

Dixon suggested people should save for future trouble and recommended paying off credit cards and loans as best they can. 

"That's more you get to save and spend on yourself and not give away to somebody else,” Dixon said. "My personal opinion is that it probably will get worse before it gets better. But I'd be happy to be wrong about that.”