EU Saves as US Consumers ‘Drive Global Economic Train’

European consumers are saving at higher rates than before COVID as their American counterparts spend.

As the Financial Times (FT) noted in a report Sunday (Oct. 6), savings in both Europe and the U.S. jumped during the pandemic when people were confined to their homes. However, Americans have since upped their spending, while Russia’s invasion of Ukraine has left Europeans feeling more insecure.

The report, citing new data from Eurostat , said that household saving ratio in Europe climbed to a three-year high of 15.7% in the three months leading to June, compared to a pre-pandemic average of 12.3%.

While the headline rates aren’t directly comparable, the FT said, the trend is notably different in the U.S., where spending has helped drive an economic rebound. U.S. personal savings rate came to 5.2% during the second quarter, while the average between 2010 and 2019 was 6.1%.

“The lower U.S. saving rate has helped propel consumer spending, which has been the key driver of U.S. growth, and a key reason why the U.S. economy has grown more quickly than the European economy,” Mark Zandi , chief economist of Moody’s Analytics, told the FT. “The American consumer has been driving the global economic train.”

Still, there are some concerns about spending levels as American retailers await the start of the crucial holiday shopping season.

“With concerns about inflation and fluctuating consumer confidence impacting purchasing behaviors, holiday shoppers are taking a more frugal approach this year, with about a third planning to reduce spending compared to last year,” PYMNTS wrote recently.

Consumer spending slowed somewhat in August, creeping up 0.2%, compared to 0.5% the month before. Bureau of Economic Analysis data suggested that continuing job growth pressures, combined with early back-to-school and travel-related expenses, could have caused households to ease back on their spending.

“The trend is concerning for retailers as they approach the vital holiday shopping season,” PYMNTS wrote last week.

All the same, consumer confidence in the economy is beginning to improve, which could be good news for retailers. The University of Michigan’s Index of Consumer Sentiment most recent rating was 70.1, rising from 67.9 the prior month.

“While sentiment remains below its historical average in part due to frustration over high prices, consumers are fully aware that inflation has continued to slow,” Surveys Director Joanne Hsu said in a statement. “Sentiment appears to be building some momentum as consumers’ expectations for the economy brighten. At the same time, many consumers continue to report that their expectations hinge on the results of the upcoming election.”