Americans are depleting their savings as the economic outlook darkens

US savings accounts are getting a punch as Americans loot their accounts, but don’t replenish them.

Almost half (46%) of adults say they are investing and saving less than usual, according to the latest Forbes Advisor-Ipsos Consumer Confidence Biweekly Tracker. That’s an eight-point jump from four weeks ago and the highest level since Ipsos began tracking data in November 2021.

Meanwhile, 29% of respondents said they were taking more out of their savings than usual.

It’s no surprise that people are skimming less while dipping into their reserves as the purchasing power of the dollar weakens. The pernicious combination of inflation, aggressive interest rate hikes by the Federal Reserve, and a significant jump in household debt in the second quarter of 2022 has set the stage for significant financial headwinds.

Leaning on your short-term savings while battling persistent inflation can be unavoidable — and it’s probably the most responsible way to pay for necessary expenses, says André Jean-Pierre, investment adviser at Aces Advisors Wealth Management in New York.

Accumulating credit card debt is the real problem in a rising rate environment. The average interest rate on a credit card account with interest assessed was 16.65% in May 2022 (latest available data from the Federal Reserve), two points higher than at the start of the year .

“In America, where many households live paycheck to paycheck, the impact of inflation is felt daily,” says Jean-Pierre. “But adding escalating interest by paying on credit can have a cascading effect on your financial life.”

Consumer confidence dips below pre-pandemic levels

Although Americans are feeling the continued sting of inflation, they have been spared the defeat of a struggling labor market. Throughout 2022, unemployment remained low; it is currently at 3.7%, according to the latest employment data from the Bureau of Labor Statistics (BLS), giving workers the power in an uncertain economy.

But the weight of rising housing costs, energy bills and other expenses, coupled with the Federal Reserve’s bold maneuvers to fight continued inflation, is shaking consumer confidence.

The overall confidence index of 50 (out of 100) is seven points lower than it was at the start of the year and 10 points lower than it was before the pandemic.

The current financial index, which measures confidence in personal financial circumstances and the local economy, sits at 38.7, 6.2 points below its pandemic and historical averages, gaining just one point from to two weeks ago.

Similarly, the investment index, currently at 40.2, is 7.7 points below its historical average and 14.4 points below its pre-pandemic level. Weak investment confidence is pretty much a given at this point, with stocks plummeting, 401(k) accounts shrinking, and fast-money startups collapsing.

The labor market continues to remain strong, but could give way under sharp rate hikes

The area of ​​their financial lives where people continue to be most confident is the job market, with a reading of 65.2.

Forty-nine percent of adults say they are more confident about job security for themselves, family and personal acquaintances compared to six months ago, up three points from two weeks ago.

But the robust job market could have cracks in its veneer.

The Federal Reserve raised target rates an additional three-quarters of a percentage point on September 21 and promises more aggressive hikes until inflation hits its 2% target, which will likely increase the number of unemployed.

“If we’re going to pave the way for another period of very strong labor markets,” Powell said in his speech after the announcement, “we have to put inflation behind us. I wish there was a way painless to do it. There is none.

Forbes Advisor recently polled more than a dozen labor market analysts, CEOs and economists, and more than 60% agreed that the Fed’s bullish monetary policy will eventually drive up unemployment rates.

Matthew Sassani, financial adviser at Irvine Wealth Management in Irvine, Calif., says the effects of rate hikes are a bit like riding on a fast-moving bus. “When the bus suddenly stops, everyone falls forward.”

Last year was marked by real estate appreciation, a strong stock market and generous consumer spending. “But now interest rates are eating away at purchasing power, which will affect businesses and employment, and people have to adapt,” Sassani said.

The best thing consumers can do now is prepare for a major downturn. This means delaying big purchases, especially if you have to use a credit card.

You should also talk to your financial advisor about your investments to make sure they’re still on track to meet your short- and long-term financial goals. Do not make hasty decisions based on market fluctuations. Redesigning your portfolio is even more critical for people nearing retirement or on a fixed income.

Survey methodology: Ipsos, which surveyed 942 respondents online Sept. 19-20, provided the results exclusively to Forbes Advisor. The survey is conducted every two weeks to track consumer sentiment over time, using a series of 11 questions to determine whether consumers have a positive or negative view of the current state of the economy and its future development.