Sep 17, 2021 - Economy

The consumer's massive "war chest"

Illustration of dollar bills sticking out of a vault door.

Illustration: Megan Robinson/Axios

Economists expect the pace of economic growth to cool off now that government transfer payments like stimulus checks and emergency unemployment benefits are in the rearview mirror. But evidence suggests that the U.S. consumer is sitting on a lot of financial firepower that could be a key driver of growth in the quarters to come.

Why it matters: U.S. consumer spending is massive, representing about 70% of GDP.

What they’re saying: “Sustainability of US consumer spending as stimulus support wanes has been questioned by some investors,” Dubravko Lakos-Bujas, JPMorgan head of U.S. equity strategy, wrote in a research note Wednesday.

  • “We disagree with this negative narrative which underestimates the robustness of consumer balance sheets and more pointedly the savings war chest in place to support future spending.”

By the numbers: During much of the pandemic, personal incomes far outpaced spending. Incomes were boosted by fiscal stimulus while spending was depressed amid lockdowns.

  • When adjusting for how much consumers typically save, the excess savings accumulated during the pandemic amounts to around $2.4 trillion.
  • “These significant ‘excess’ savings should more than buffer headwinds that consumers may face from decreasing government stimulus payments and rising consumer prices,” Lakos-Bujas argued.

Yes, but: This estimate doesn’t account for how much money was used for paying down mortgages, paying off student loans, or even funding a brokerage account.

  • “I’m leery of thinking about this as though it were some giant piggy bank just waiting to fuel some bacchanalian spending spree once we get past the worst of the pandemic,” Wells Fargo senior economist Tim Quinlan tells Axios.

The bottom line: The average consumer has some combination of extra cash and lower debt.

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