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'People have apparently run through their savings,' economists say

Posted at 6:50 PM, Apr 11, 2022

CLEVELAND, Ohio — As Northeast Ohio farmers get ready for planting season they're getting hit with sky-high costs.

The U.S. Department of Agriculture says most fertilizer prices have more than doubled from a year ago.

The cost of seed and diesel is also going up and those higher costs will be passed on to you.

Building your dream home is also becoming more expensive.

Right now, builders across the country are struggling to keep new homes affordable during supply chain and inflation problems.

The U.S. Census Bureau says home construction costs are up 17.5% from 2020 to 2021, the largest one-year jump since 19-70.

But, it's not all bad.

The average price of gas is dropping in Ohio.

According to AAA gas is $3.86 a gallon, a drop of 10 cents from a week ago, and more than 20 cents from a month ago.

And the battle against rising inflation is being fought on two fronts:

First, consumers are left trying to find the money to cover increased costs.

We see that impact on the savings rate, which now sits below pre-pandemic levels.

"So, people have apparently run through their savings," said Kurt Rankin, senior economist PNC Financial Services Group.

Second, The Federal Reserve is turning to interest rate hikes to curb our spending and slow the economy.

"Essentially 70% of the U.S. is driven by workers bringing home a paycheck, but then spending that paycheck back into the economy. So, if that slows, the economy slows, and recession becomes an issue," said Rankin.

Rankin said job creation in leisure and hospitality in Northeast Ohio is among the worst in the country right now, which may be a saving grace if the U.S. enters recession territory.

"The fact that Northeast Ohio has lagged a bit, maybe that provides a bit of a cushion that if there is a slowdown there's not as much to pull back on."

Regardless, Rankin, along with other economists, predicts a series of stressors will surface. that will impact personal budgets in the coming months.

"You may be seeing it in your mortgage rates, mortgage rates are beginning to rise, you might be seeing it in the credit card debt you're paying, as your credit card debt goes up and you may see it with your employer deciding not to borrow money to continue to grow," said Michael Goldberg.

Goldberg, with the Weatherhead School of Management at Case Western Reserve University, said this is a good time to crunch the numbers when it comes to your budget.

"There are these moments that we as individuals are taking a look at how we're spending our resources," said Goldberg.

While it may be tempting to maintain your level of spending in an economic downturn by swiping credit cards, Rankin advises against it.

"Interest rates are rising, and they will continue to rise," said Rankin.

Both Rankin and Goldberg said the implication of rising interest rates will be felt a year to a year and a half from now, which could mean an economic slowdown in mid-2023.