- U.S. households have gained about $2.5 trillion in excess savings since March 2020 thanks to stimulus and rising wages.
- The extra money has helped keep consumer spending strong, pushing prices higher.
- Now inflation is eating away at those savings, and CEOs are warning they could run out within months.
The U.S. economy has been beating expectations for two years now, thanks in large part to consumers eagerly buying just about anything companies could sell them.
Much of this expenditure was fueled by an estimated amount $2.5 trillion in excess savings that households have accumulated due to federal pandemic aid and rising wages at work.
One of the results of this growing consumer demand has been an increase in the price of goods and services, otherwise known as inflation.
But with inflation at its highest level in 40 years this year, Americans are finding that their monthly income isn’t going as far as it used to.
According to the latest figures from the Commerce Department.
This is half the rate for December and about a third of that of the previous year.
Many households are already in negative savings territory, meaning they are increasingly drawing on their savings to cover purchases each month.
“This is not a normal recovery, and this fiscal stimulus is still in consumers’ pockets,” JPMorgan CEO Jamie Dimon told investors at a conference this week. “They’re spending it, they’re spending it at very high levels.”
But, he added, the withdrawal could mean that consumers have only six to nine months of purchasing power left.
Dimon’s remarks echoed PayPal CEO’s comments Dan Schulman last week at the World Economic Forum in Davos.
The combination of high spending and high inflation means Americans are burning through their savings at a rate that could see them depleted by the end of this year, he said.
Indeed, this is already happening in the most vulnerable households.
“We’re already seeing reduced spending at lower income levels, and that’s now shifting to middle incomes,” Schulman said.
More than eight in ten US shoppers plan to buy fewer things in the next three to six months, according to a recent survey by market research firm NDP Group. The survey also revealed that consumers bought 6% fewer items in the first three months of 2022 compared to the same period in 2021.
“There is a tug of war between the consumer’s desire to buy what they want and the need to make concessions based on the higher prices hitting their wallet,” the NPD leader said.
Councilman Marshal Cohen said in a statement.
The retail slowdown is already weighing on the profits of big brands like Target and Walmart, and could have ripple effects across the economy.
For now, Americans are still spending (and plan to spend) a lot of money: Airlines and hotels are reporting strong bookings, and Commerce data indicates people are prioritizing services over products .
While there are promising signs of these larger economic challenges which should improve, the next few months will be a delicate balancing act in getting prices under control without crashing them.
“There are storm clouds…it’s a hurricane,” Dimon said. “This hurricane is right out there on the road coming our way. We just don’t know if it’s a minor hurricane or super hurricane Sandy.”