Consumers still have 75% of the savings in excess | So Good News
Americans are still collectively at $1.7 trillion in excess savings created as a result of the pandemic.
Why it matters: The pile of cash has helped cushion buyers who are facing high interest rates, high borrowing costs and the threat of a recession. It helps explain why companies from United Airlines to Coca-Cola are showing that consumers want more.
Play: The surplus is shrinking, but overall, a large portion remains, according to the Federal Reserve’s latest data. Excess savings reached nearly $2.3 trillion in the third quarter of last year.
- Story: Excess saving in this analysis is defined as the amount of money that people saved exceeded what would have been lost without an epidemic-related reason.
One of those reasons: A major economic response by the US government – consider stimulus or increase unemployment benefits – which helped consumers, as reported by the Wall Street Journal.
What they say: “This savings pot provides a ‘war chest’ for income that could make the US more resilient in a recession,” James Knightley, global chief financial officer at ING, tells Axios.
- But “if the fear of unemployment rises … this will make households more cautious and reluctant to spend money regardless of their income,” he adds.
Between the lines: Although 75% of the same amount is still in the second quarter, the picture looks different in the income groups.
- The second and third groups of earners saved more than 92% and 85% of their savings during this period, respectively.
- The bottom and top earners have seen the biggest declines – each with 54% and 69% of what they built, respectively.
Flashback: Economic stimulus injected $5 trillion into the economy and nearly $1.8 trillion into individuals and families.
The most important point: This pile of money helps explain why consumers are – so far – holding on.
- But from the Fed’s point of view, it could be difficult. It wants to eliminate demand to stop inflation. The user can make the process more difficult.