Americans are socking away less of their paychecks each month so they have more cash to spend.

The strategy has supported their purchases, and the economy, in recent months, but it’s bound to run out of steam this year as households look to beef up their stockpiles of cash, forecasters say. And that could mean weaker consumer spending along with an economy that’s more vulnerable to a slowdown or even a recession.

Consumption makes up about 70% of U.S. economic activity.

The personal saving rate, the share of income that Americans are squirreling away, was 3.8% in January, well below the recent peak of 5.3% last May and the roughly 7% share before the pandemic, according to data from the Commerce Department.

Historically, the saving rate has averaged about 6.2%, says Gus Faucher, chief economist of PNC Financial Services Group.

Faucher expects consumers to respond to their skimpier wallets by saving more this year. “It’s going to be a drag on consumer spending growth in 2024,” he says.

In January, spending grew a modest 0.2%, down from 0.7% the previous month, Commerce said.

Contributing to a more frugal outlook: This year is expected to be a record-breaker for retirements, with more Americans than ever turning 65 and shifting from paychecks to Social Security and pensions.

Cynthia Woltjer, 65, of Indianapolis, says she and her husband have been spending less since recently retiring. This year, they’re eating out about twice a month instead of weekly and meticulously sticking to grocery shopping lists instead of making impulse purchases like chicken or pork.

Those overhead kitchen lights and summer tops on Amazon that Woltjer covets will also have to wait.

“Inflation has a lot to do with it,” she says. When she was working and earning a salary, “It didn’t bother me as much.”

How has COVID-19 changed our spending habits?

Americans’ saving and spending habits have been highly volatile since the pandemic.

In April 2020, the saving rate peaked at an all-time high of 32% as households banked the first round of the government’s COVID-related stimulus checks but had few places to spend the windfall amid widespread lockdowns.

The saving rate fell sharply to a low of 2.7% in June 2022 as Americans struggled to keep pace with inflation, which peaked at a 40-year high of 9.1% that month. Since then, savings initially rebounded as wage growth picked up and inflation eased. Since last spring, however, it has slowed steadily.

Are Americans feeling better about the economy?

Many Americans have opened their wallets because they’ve grown more confident the nation can avoid a recession despite the Federal Reserve’s sharp interest rate hikes to fight inflation, Faucher says.