New research by BAI reveals how worried many Americans are about their short-term cash needs during the COVID-19 pandemic and with the impact of lingering economic pressures. This is an important time for financial services leaders to closely monitor changing deposit flows and in providing valuable services that can help people manage their overall financial matters including meeting their near-term financial commitments.
With the loss of many millions of jobs due to the coronavirus, and the serious threat to millions more, it makes sense that many people are keenly focused on their needs now and over the next several months. The May jobs report may have been a positive surprise and there has been some good news lately from retail and housing, but the U.S. economy is still far from being out of the woods.
BAI’s latest monthly deposit numbers reflect the elevated economic concern. Consumer deposit balances were up around 4 percent year-over-year in the first three months of 2020. The trend line started spiking in early April, when nearly the entire nation was on coronavirus-related lockdown. By the end of May, deposit balance growth in 2020 was up more than 10 percent above the previous year.
Part of that difference can be explained by the three-month delay in the April 15 deadline for filing taxes – last year, that shaved about 2 percent off the deposit growth. We expect to see that annual dip in the July deposit numbers. Accounting for another chunk of the year-over-year difference in deposit growth is the federal stimulus checks paid to millions of U.S. families during that time period.
We don’t have data to conclusively explain the rest of the April-May deposit spike, but we do know that consumer confidence plunged in April with the uncertainty of the pandemic and unemployment at levels not seen since the Great Depression. The historical relationship is well-established: Confidence down, spending down, savings up. States reopening for business will also likely affect growth in consumer deposit balances going forward, though exactly how this plays out remains fluid given that some of the earliest reopeners are seeing an acceleration in new COVID-19 cases.
An even sharper climb in deposit balances was seen for small businesses, with a growth trend in the low single digits at the end of March widening to +23 percent by the last week in May. Most of that increase came between late April and mid-May, which was when many businesses were receiving funding through the Paycheck Protection Program. Credit line drawdowns also likely contributed to the deposit upswing.
We anticipate that tax payments in July will reduce account balances, as will the disbursement of PPP funds to pay employees and cover other business expenses. But with economic worries so top of mind for small business owners these days, maintaining a defensive cash stash is likely to remain a priority for many.
Findings from a May survey commissioned by BAI and the National Foundation for Credit Counseling (NFCC) and conducted online by The Harris Poll among over 2,000 U.S. adults support the idea that many Americans may be keeping more short-term liquidity while the nation contends with the uncertainties arising from COVID-19.
Among the most common personal finance concerns was not having enough “rainy day” savings for an emergency. More than half of U.S. adults (55%) said they find it difficult to minimize debt, with the most common reasons being reduced income, unexpected financial emergencies or job loss. The percentage of U.S. adults spending less than they were a year ago was roughly double the level in the previous version of the survey in early March, before the COVID-19 layoffs and lockdowns.
Because I’m very much an optimist, let me end on a somewhat cheerier note – the survey results were not all dour when looking farther down the road. Nearly half of U.S. adults (47%) are either very confident or extremely confident about their ability to meet their future financial obligations, while only 12 percent were not confident at all.
The pandemic has resulted in a lot of financial pressure now, but many Americans see it as short-term issue that, with the help of solid financial management, better times will follow. Many banks are proactively helping consumers and businesses address current issues and better position them for longer-term financial health. There will be brighter times ahead.
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