Consumers still have 75% of the savings in excess

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Data: US Federal Reserve; Note: High and low earners refer to households with high and low incomes; Chart: Madison Dong / Axios Visuals

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.

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