Remarkably, a lot of this excess saving remains untouched, as the strong economic rebound and healthy labor market has provided the means to support increasing spending. This points to some progress in reducing wealth inequality among households. Additionally, lower income families' estimated share of savings during the pandemic is almost three times higher than historical average of 10% reported by the Distributional Financial Accounts over the past twenty years. 1 That's relatively higher than the average of 20% held by families in the top 40-99% of income distribution and higher than an estimated 8% of excess saving held by the top 1% of income earners, who typically account for at least twice that share of total deposits. They estimated that almost 29% of all excess saving is held by families in the lowest 40% of income distribution. With the help of an unprecedented level of government stimulus, American households were able to build up excess saving (i.e., saving above what would have been accumulated absent the pandemic) of almost $2.7 trillion, which is roughly twice the average of other advanced economies, when measured as a share of GDP.Ī recent study by the Federal Reserve Board finds that changes in spending and the progressive design of income support measures may have helped improve the economic well-being of lower income groups. The inability to spend in many areas early in the pandemic (primarily services) left many households with higher savings than normal. Soaring house prices have also boosted real estate wealth, with more than a quarter of gains in net worth due to the recent housing boom.Įxpansion of liquid savings has also been a driver, accounting for roughly ten percent of wealth growth. In the two years of the pandemic, wealth increased by an impressive 30%, mainly on the back of stock market gains, which accounted for at least one third of the overall growth in assets (or more than 60%, if counting retirement accounts and mutual fund holdings) (Chart 2). money earned – to an all-time high of 8.3 times (Chart 1).
The net worth of American households and nonprofit organizations surged to a new record of $150 trillion in the fourth quarter of 2021, lifting the aggregate wealth-to-income ratio – money saved vs. Households' Ledger Has Never Looked Better Overall, we think that the effect of high inflation on the economy will be limited to a slowdown, rather than an outright downturn. Another worry is that high prices today and expectations for elevated future prices will lead consumers to delay purchases, further weighing on spending momentum. Higher prices for many essentials will exact a heavy toll on modest income households. High inflation reduces consumers' incomes in real terms, and we expect that to weigh on real consumer spending over the coming quarters (see our forecast). One of the by-products of the pandemic-induced recession is a higher level of household wealth, which, combined with exceptionally strong job growth, should be a harbinger of strong consumer spending growth.ĭespite this, consumer sentiment is the lowest it's been since the Global Financial Crisis as inflation not seen in decades is at the top of consumers' minds. Thankfully, they have the financial resources to do that. As the shadow of COVID-19 lifts, more people should be able to embrace the freedom of movement and spend on activities that may have been restricted or avoided for much of the last two years.
While the risk of a more virulent variant remains, most scientists agree that the virus is entering a less potent endemic stage. After two years of living through COVID-19, it finally starts to feel like the worst of the pandemic is in the rearview mirror.
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