Consumers still have 75% of pandemic excess savings

Data: US Federal Reserve; Note: Highest and lowest incomes refer to households in the top and bottom income quartiles; Graphic: Madison Dong/Axios Visuals

Americans are still collectively sitting on $1.7 trillion in excess savings accumulated during the pandemic.

Why is this important: The cash pile has helped put a floor under consumers facing higher prices, higher borrowing costs and the threat of a looming recession. This helps explain why companies in United Airlines at Coca Cola show strong consumer demand.

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

  • The context: In this analysis, excess savings are defined as the excess of people’s cash reserves beyond what would typically have been set aside were it not for pandemic-related factors.

One of these factors: The massive fiscal response from the U.S. government — think stimulus checks or extra unemployment benefits — that has helped prop up the consumer, as the Wall Street Journal reports.

What they say : “This savings pot yields a ‘war chest’ across the income spectrum, which can make the United States more resilient to the economic downturn,” James Knightley, chief international economist at ING, told Axios.

  • But “if fears of unemployment increase…this will naturally make households more cautious and less inclined to spend, no matter how much they save,” he adds.

Between the lines: Although 75% of this maximum surplus remains in the second quarter, the situation is different according to income groups.

  • The second and third quartiles of earners retained more than 92% and 85% of their accumulated excess savings over the period, respectively.
  • The bottom and top quartiles of earners saw bigger declines – each owning 54% and 69% of what they had built, respectively.

Rollback: The fiscal stimulus injected an unprecedented effect 5 trillion dollars in the economy with about $1.8 trillion for individuals and families.

The bottom line: This stack of cash helps explain why the consumer is holding on – so far – for the ride.

  • But from the Fed’s perspective, this could be troubling. He wants to stifle demand to contain inflation. A flush consumer can make this task a bit more difficult.

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