Oct 31, 2022 - Economy

Consumers still have 75% of pandemic excess savings

U.S. household excess savings
Data: U.S. Federal Reserve; Note: Highest and lowest earners refer to households in the top and bottom income quartiles; Chart: Madison Dong/Axios Visuals

Americans are still collectively sitting on $1.7 trillion in excess savings built up over the pandemic.

Why it matters: The cash pile has helped put a floor under consumers facing higher prices, higher borrowing costs and the threat of an imminent recession. It helps explain why companies from United Airlines to Coca-Cola are reporting strong consumer demand.

State of play: Excess savings are dwindling, but collectively, a sizable chunk still remains, according to new data from the Federal Reserve. Excess savings peaked at nearly $2.3 trillion in the third quarter of last year.

  • Context: Excess savings in this analysis is defined as how much people's cash reserves exceeded what would have typically been stashed away if not for pandemic-related factors.

One of those factors: The massive fiscal response on the part of the U.S. government — think stimulus checks or topped-up unemployment benefits — which helped buoy the consumer, as the Wall Street Journal reports.

What they're saying: "This savings pot does give a 'war chest' across the income spectrum that can make the U.S. more resilient in the economic downturn," James Knightley, chief international economist at ING, tells Axios.

  • But "if fears of joblessness rise ... this will naturally make households more cautious and less inclined to spend irrespective of how much they have in their savings," he adds.

Between the lines: While 75% of that peak excess remains as of the second quarter, the picture looks different across income groups.

  • The second and third quartile of earners have retained more than 92% and 85% of their excess savings built up during the time period, respectively.
  • The bottom and top quartile of earners have seen larger declines — with each now holding 54% and 69% of what they had built, respectively.

Flashback: Fiscal stimulus injected an unprecedented $5 trillion into the economy with about $1.8 trillion to individual and families.

The bottom line: This cash pile helps explain why the consumer is — so far — holding up.

  • But from the Fed's perspective, it could be troubling. It wants to quash demand to put a lid on inflation. A flush consumer may make that task a little bit harder.

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