Falling Checking Account Balances Point to Economic Growth, Study Suggests

The number of dollars in consumer checking accounts is down, suggesting that consumers are spending more and fueling economic growth, according to new research from financial institutions analytics company Moebs Services.

Using data from FDIC and NCUA call reports, the Lake Forest, Ill.-based company found that the average consumer checking account balance fell 6.5% from its peak in 2017 to about $3,500 at the end of the third quarter of 2018. That marked a second straight quarter of declining balances and it had significant implications for the state of the economy, it said.

“This signals the consumer is giving up some of the dollars it has steadfastly held for the past eight to 10 years. This tells us the consumer is finally reengaged in the economy for the first time since 2008,” Moebs Services noted.

“When the economy does poorly, consumers store away cash in checking like a squirrel stashing away nuts for a harsh winter. When the economy does well, the consumer spends their cash stored up in checking like squirrels finding their stashed nuts,” the study said.

“The 359 million checking accounts at banks, thrifts and credit unions tell the economic story better than any macro or micro economic performance measure, because it deals with what is important to the average American and their household,” Moebs Services economist and CEO Michael Moebs added. “The checking account, measured by balances, transactions and total number is the one true insight into the consumer’s sentiment on economic conditions, reflected by spending and saving patterns.”

Moebs also projected that consumer checking account balances would continue to shrink.

“The initial Checking Barometer reports year-end 2018 checking balances will continuing the declining trend,” he said. “And with three-quarters of reduced average consumer checking balances, 2019 will be a standout year.”

The report is the latest in a series of Moebs Services studies regarding the impact of checking accounts on credit union operations. Last year, Moebs Services reported that checking account balances at credit unions had spiked 3% during the 12 months ended June 30, 2018, but checking account balances at banks dropped 1.8% over the same period.

“When this excess $1.4 trillion starts being paid to retail providers of goods and services, these merchants will be the big winners as will the economy, while banks, thrifts and credit unions will be the big losers unless these depositories are prepared to offer much higher rates along with free checking and low fees to keep the consumer, especially millennials,” the company said at the time.