With wounds from the Great Recession still fresh, chastened Americans are hoarding more cash in their checking accounts than at any time in the last 25 years.
The defensive stance, uncharacteristic of previous periods of low inflation and an improving economy, reflects how debt-burdened Americans have striven to clean up their personal finances since the recession ended five years ago.
The lack of attractive investment alternatives, with savings accounts paying next to nothing and the stock market already at lofty heights, is another factor, financial analysts said.
A report released Thursday by bank consulting firm Moebs Services Inc. calculated the average balance for U.S. checking accounts at $4,436 at the end of last year — more than double the average of $2,100 over the 25 years of the annual survey.
During good economic times, when unemployment and inflation are low, the average balance in consumer checking accounts is about $1,400, the survey noted.
"When times get difficult, the consumer sits things out and checking balances get larger, normally upward to $3,000 or a bit beyond," the study said. "Generally there is higher unemployment, lower inflation and falling prices."
By contrast, free-spending Americans had allowed their checking accounts to drop to an average of just $788 in 2007, the last year before the near-meltdown of the nation's financial system, according to the study by the Lake Bluff, Ill., firm.
The Moebs report, previously confidential for its clients, is fresh evidence of how the devastating economic downturn worldwide has changed consumer habits, especially on spending and saving.
As people have been cleaning up their financial houses, they have only slowly increased spending, and that has helped to slow the recovery because spending typically represents about two-thirds of economic growth.
The study was based on Federal Reserve reports and proprietary data from 2,800 banks and credit unions, said economist G. Michael Moebs, who heads the firm. Moebs said he released the findings for the first time because he is confident his numbers could be off by no more than 10%.
"If it's off by 10%, the amount in the accounts is $4,000 instead of $4,400," Moebs said. "So what? It's still twice what we've seen in the past."
Moebs said the trend is challenging for financial firms, reducing their income from overdraft fees. He is urging his clients to prepare for a big withdrawal of funds whenever depositors decide the economy is strong enough for them to use the cash to pay down mortgages, take a vacation or buy cars.
UCLA economist Lee Ohanian said the study shows that despite a recent burst in jobs — employers have added more than 200,000 net new jobs in each of the last five months — there remain "some very troublesome issues in the economy."
Until recently, much of the decline in unemployment was from people dropping out of the job market, he said. "Our employment-to-population ratio is still very low."
Growth in productivity is running at less than half its usual rate, Ohanian said, and the number of long-term unemployed remains high.
"That weighs on people's minds," he said. "They think, 'If I lose my job will I be out of work for two years?' It's scary."
The result, he said, has been a wave of caution, with Americans paying down old debts, thinking twice about new borrowing and keeping cash on hand as a safeguard.
"A lot of people got badly burned picking up too much debt" in the years leading up to the recession, Ohanian said. "Now they are scared about where to put their money, especially after a huge run-up in the stock market. Savings accounts don't pay much, and stocks go up and down. You could lose your nest egg."
Mark Zandi, chief economist at Moody's Analytics, agreed that crisis-bred caution factored into the trend, but said rising employment is likely to have contributed to the rise in checking balances as well.
"There is more income," he said. "I think it's going to take time for consumers to catch up — to increase their spending to match the improvement in jobs."
Zandi said he suspected that much of the increase in average checking balances reflects more affluent families allowing cash to pile up for now rather than paying down mortgages carrying rates as low as 3.5% or pouring more money into stocks and bonds.
In Yuba City, however, people of mostly modest means — farmers, retirees, long-distance commuters to Sacramento and San Francisco — also are padding their balances, said John Cassidy, chief executive at Sierra Central Credit Union.
"Consumers should be applauded for cleaning up their credit. They're smarter now, more aware of charges, and the level of overdrafts has dropped dramatically," Cassidy said.
"During the bubble periods — this started in the late '80s, really — people didn't bat an eye at running up hundreds of dollars in overdrafts. They figured, 'It's a part of my lifestyle, I'll just build it into my budget,'" he said.