Against all odds, the household savings rate picked up at the beginning of the year and is on track to end the year on the up, according to a CaixaBank Research report to be published this week. The improvement goes against the grain, as it occurs despite interest rate hikes, and coincides with minimal bank delinquencies. According to the author of the report, the cause is the dynamism of the labor market.
CaixaBank Research calculations show that the household savings rate registered a change in trend during the first quarter of this year, as it reached 7.5% of gross disposable income. This percentage is above the last decade’s average of 6.7%, and is the highest since 2004 if the pandemic years are excluded, which were exceptional and recorded levels of to 18.9%.
“The forecast is that for the rest of the year the rate will remain at similar levels and even register a slight upswing”, says the author of the report, Javier García-Arenas. “The dynamism of gross disposable income is surprising.”
The cause of this improvement in the financial health of households, he indicates, is “in the increase in the number of workers”. Even with households that save less and suffer a loss of purchasing power, the wage bill as a whole is increasing, because many others are joining the labor market, while consumption is moderated in part due to the containment of inflation.
Although August ended with 24,826 more unemployed, the latest EPA available, with data through June, shows a record number of Social Security enrollees and an unemployment rate of 11.6% , the lowest since the Great Recession.
This is the main cause of the increase in savings, but there are others, such as the revaluation of pensions by 8.5% and “relatively moderate” wage increases, plus a increase in migratory flows that has incorporated 241,000 households.
The result of all these factors is a gross household disposable income of 202,347 million euros, still below pre-pandemic levels, but 10% above those of a year earlier. The remuneration of employees, including additions to the labor market, increased by 7.8%, and the self-employed entered by 10.6% more.
This improvement in income has more than compensated for the increase in interest on mortgages and loans, which was equivalent to 4,118 million euros in the first quarter. In addition, “household consumption expenditure has been losing strength”, says the report.
The forecast is that this year will end with a 5% increase in household income and with consumption very similar to the previous year, which would have a positive effect on savings. Of course, the joy goes from neighborhood to neighborhood, since “the differences between households are notable”, warns CaixaBank Research.
And where does the money of those who save go? “Many households use a portion to pay off the mortgage,” says the author of the report. The Bank of Spain calculates that the mortgage debt is being reduced at a rate of 1,112 million euros per month. Between January and July, customers’ money in banks has been reduced from one billion to 988,457 million, but due to the lower volume in current accounts. On the other hand, deposits have increased from 65,162 million to 93,504 million.
