Show me the money – US personal savings keep growing

Summary

Households are sitting on a cash hoard of nearly $2 trillion. At its peak later this year, we estimate excess savings will swell to $2.4 trillion. Consumers, the story goes, are flush with cash. But what if they're not?

Although banks report sharp increases in deposit accounts, there is no way to know for certain the excess savings is parked in consumer bank accounts. This report considers the alternative uses for savings and what they mean for consumer spending.

Note that our forecast does not rely on a large draw-down of this excess savings. Even if we are wrong about the amount of savings households have to tap once the economy reopens, consumer spending can still be strong.

Did you know the human head weighs eight pounds?

We calculate excess savings as the cumulative amount of money saved since March 2020, less the amount that would have been saved by households had the saving rate remained at its pre-pandemic, January 2020 rate of 7.6%. Said differently, it is the aggregation of monthly income less monthly outlays that are above pre-COVID saving levels.

By our estimates, excess savings reached $1.8 trillion in February and are set to reach as high as $2.4 trillion in the third quarter of this year. At face value, this implies consumers will soon be sitting on enough cash to fund nearly 20% of consumer spending in a given year pre-pandemic. But can we take these estimates at face value? 

Source: U.S. Department of Commerce and Wells Fargo Securities

Personal saving in the National Income and Product Accounts (NIPAs) is the disposable personal income left over after deducting personal outlays (personal consumption expenditures, personal interest expenses, and net current transfer payments). Personal income used to acquire assets is therefore not counted as consumption and instead included in personal savings. So what else might consumers have done with excess savings? And what are the implications for the consumer spending outlook?

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