Households Burning Through What’s Left of Their Pandemic Savings​​​

The cushion of savings many had built up during the pandemic is thinning out, and in some households, it is already gone, the Wall Street Journal reported. Americans have spent down about 35% of the extra savings they accumulated during the pandemic as of mid-January, according to an estimate from Goldman Sachs. By the end of the year, the company forecasts that they will have exhausted roughly 65% of that money. In 2020 and into 2021, a combination of government pandemic stimulus and reduced spending, for example on restaurants and travel, fattened Americans’ wallets. Households amassed $2.7 trillion in extra savings by the end of 2021, according to Moody’s Analytics. This cash helped Americans make it through a period of high inflation last year, but the forces that had acted to boost savings reversed direction as pandemic relief unwound and prices soared. Today, some people are having to cut back on their spending or add to their credit card balances. Many have had to tap their savings to stay afloat, say economists. Early in the pandemic, Americans were socking away money at unprecedented rates. In 2020, they collectively saved 16.8% of their disposable income, well above the 8.8% they saved in 2019. But in 2022, the saving rate fell to 3.3%. Many households are struggling financially after draining their savings last year, but David Mericle, Goldman Sachs’s chief U.S. economist, said that the circumstances that pushed them to do so — surging inflation and the end of government transfer payments — are unlikely to repeat. “You shouldn’t need to tap your wealth as much, hopefully, in 2023 as you needed to in 2022 in order to avoid a big decline in your real consumption level,” he said. His team at Goldman Sachs estimates that the monthly saving rate will rise modestly by the end of the year, to about 4.5%. Lower-income households have been the first to use up their pandemic savings, said Matthew Rognlie, an economics professor at Northwestern University. (Subscription required.) Read more.

Applications for Jobless Aid Rose Last Week, but Remain Low​​​

More Americans filed for jobless benefits last week, but layoffs remain historically low despite attempts by the Federal Reserve to cool the economy — and hiring — to bring down inflation, the Associated Press reported. Applications for jobless aid in the U.S. for the week ending Feb. 4 rose by 13,000 last week to 196,000 from 183,000 the previous week, the Labor Department reported Thursday. It’s the fourth straight week that claims were under 200,000. Jobless claims generally serve as a proxy for layoffs, which have been relatively low since the pandemic wiped out millions of jobs in the spring of 2020. The four-week moving average of claims, which flattens out some of the week-to-week volatility, fell by 2,500 to 189,250. It’s the third straight week that the four-week moving average has been below 200,000 and the ninth straight weekly decline. About 1.69 million people were receiving jobless aid the week that ended Jan. 28, an increase of 38,000 from the week before. Read more.

Next ABI "Look Ahead for 2023" Discussion on Feb. 15 to Focus on Mediation, Emerging Industries and Technology!

ABI's "Look Ahead for 2023" half-hour online programs continue on Feb. 15 at 5:30 p.m. ET with experts providing perspectives on mediation, emerging industries and technology. Register for free! 

Miss any of the previous "Look Ahead for 2023" discussions? Watch replays here!

States Are Flush with Cash, Which Could Soften a Possible Recession​​​

State governments are entering 2023 with record-high reserves, which could help the overall economy weather a recession this year, WSJ Pro Bankruptcy reported. The rapid economic recovery from the pandemic, combined with an influx of federal stimulus money, has filled public coffers, allowing governments to squirrel funds away for emergencies. States will hold an estimated $136.8 billion in rainy-day funds this fiscal year, according to the National Association of State Budget Officers, up from $134.5 billion a year earlier, when they represented 0.53% of gross domestic product, the highest in records going back to 1988. This year’s figure would represent roughly 12.4% of their total spending. Unlike the federal government, most state and local governments must balance their budgets every year. That means that a fall in tax revenues must be offset, most often by cutting spending and laying off workers, which exacerbates economic downturns. Healthy reserves could make such cuts unnecessary. On Wednesday, Federal Reserve Chairman Jerome Powell said that state and local governments “are really flush these days,” which could support economic growth this year. Moody’s Analytics estimates that 39 states have the reserves necessary to offset all the revenue expected to be lost in a relatively mild recession. Four more are within striking distance. City and county governments have also been able to pad their reserves thanks to recovery and stimulus programs. Comprehensive data on local government finances isn’t available yet, but New York City boosted its reserve funds to $8.3 billion in fiscal year 2023, or 11.1% of revenues. Both figures are the highest ever. Los Angeles and Chicago also have directed more money to rainy-day funds. (Subscription required.) Read more.

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Don't Miss Three Key abiLIVE Webinars Coming Up in February!

February will feature three excellent abiLIVE webinars with experts addressing important insolvency topics. Programs include:

- February 13: "First Day by Reorg: A Review of Chapter 11 Filings in 2022"

- February 15: "All In: The Role of Active Allyship in Diversity, Equity, Inclusion & Belonging"

- February 28: "Student Loans in 2023: Is Bankruptcy Finally a Viable Option?"

Registration for all webinar programs is complimentary!

Analysis: What Recession? Some Economists See Chances of a Growth Rebound​​​

Many economists and investors had a clear narrative coming into 2023: The Federal Reserve had spent months pushing borrowing costs rapidly higher in a bid to tame inflation, and those moves were expected to slow growth and the labor market so much that the economy would be at risk of plunging into a downturn. But the recession calls are now getting a rethink, the New York Times reported. Employers added more than half a million jobs in January, the housing market is showing signs of stabilizing or even picking back up, and many Wall Street economists have marked down the odds of a downturn this year. After months of asking whether the Fed could pull off a soft landing in which the economy slows but does not plummet into a bruising recession, analysts are raising the possibility that it will not land at all — that growth will simply hold up. Not every data point looks sunny, however: Manufacturing remains glum, consumer spending has been cracking, and some analysts still think a mild recession this year remains likely. But there have been enough surprises pointing to a continued momentum such that Fed officials themselves seem to see that there is a better chance that the nation will avoid a painful downturn. That resilience could even be a problem. While a gentle landing would be a welcome development, economists are beginning to ask whether growth and the job market will run too warm for inflation to slow as much as central bankers are hoping — eventually forcing the Fed to respond more aggressively. The Fed has lifted rates from near-zero early last year to above 4.5 percent as of last week — the fastest series of policy adjustments in decades. Those higher borrowing costs have translated into pricier car loans and mortgages, and for a while they seemed to be clearly slowing the economy. But as the central bank has shifted toward a more moderate pace of rate moves — it slowed the speed of its increases first in December, then again this month — markets have relaxed. Read more.

Child Care Hasn’t Recovered from COVID, Keeping Many Parents at Home​​​

The high cost and limited availability of child care is keeping some parents out of the labor force when unemployment is at its lowest rate in more than half a century, the Wall Street Journal reported. There were about 58,000 fewer daycare workers in the U.S. last month compared with February 2020, just before the pandemic took hold, according to the Labor Department, even though the broader labor market has recovered all lost jobs. Lack of care is one factor that has kept Americans on the sidelines, despite 11 million available jobs at the end of last year. That limited supply of labor is also keeping upward pressure on costs. The median price to put an infant in center-based care ranges from $8,000 a year in less-populated counties to more than $17,000 in a major metro area, according to a Labor Department report. The report found that care costs can be nearly a fifth of median family income in high-cost large cities, and as a result, mothers in those areas were less likely to work. (Subscription required.) Read more.

Volunteer Today to Become a Preliminary-Round Judge or Brief-Grader for the Duberstein National Bankruptcy Moot Court Competition!

The Duberstein National Bankruptcy Moot Court Competition, now in its 31st year and widely recognized as one of the nation’s preeminent moot court competitions, will be held in New York on March 4-6, 2023. Fifty-three teams from law schools across the country will compete through written briefing and oral argument. Volunteers are needed for brief-graders and judges for the preliminary rounds of the Competition on Saturday, March 4th, and Sunday, March 5th. To find out more and to volunteer, please click here.

Don't Miss Kenneth Feinberg on Special Panel at ABI's Annual Spring Meeting!​​​

Kenneth Feinberg served as the Special Master following 9/11, tasked with the seemingly impossible job of determining the value of a human life; his work was later the subject of Worth, a 2020 film starring Michael Keaton. A legendary mediator and expert at alternative dispute resolution, Mr. Feinberg will be a featured panelist at April’s Annual Spring Meeting exploring “The Many Roles of a Neutral in Bankruptcy." Are you registered?

USTP to Resume Debtor Audits in March 2023

Effective March 13, 2023, the USTP will resume its designation of individual chapter 7 and chapter 13 cases for audit. These audits had been suspended in March 2020 due to public health concerns associated with the COVID-19 pandemic. As authorized in section 603(a) of Public Law 109-8, the USTP established procedures for independent audit firms to audit petitions, schedules and other information in consumer bankruptcy cases. Pursuant to 28 U.S.C. § 586(f), the USTP contracts with independent accounting firms to perform audits in cases designated by the USTP. Click here for more information.

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