Cash Saved During Pandemic is Letting Shoppers Keep Spending

Guests make their purchases during the grand opening of Nordstrom Rack at Best of the West shopping center on May 18, 2023 in Las Vegas, Nevada.

David Becker / Getty Images

One of the stranger things about the economic crisis that came with the pandemic was that on average, it gave a big boost to Americans’ bank accounts—and a lot of that money still hasn’t been spent despite the cost of living soaring in recent years. 

That’s according to recent research by Hamza Abdelrahman and Luiz E. Oliveira, economists at the Federal Reserve Bank of San Francisco, who calculated that Americans still have $500 billion of the $2.6 trillion they accumulated in “excess savings.” That is, savings beyond what they normally would have put away based on the pre-pandemic trend. That extra money is likely to support consumer spending at least through the end of 2023, they estimated. 

Whether the U.S. economy stays afloat or goes into a long-predicted recession could depend on how healthy people’s bank accounts are, and how willing they are to keep spending their reserves or rack up credit card debt. That’s why economists, and officials at the Federal Reserve, keep an eye on savings and how it might affect consumer spending—the main engine of the U.S. economy, accounting for 68% of the total Gross Domestic Product. 

Figuring out exactly how much extra money is still out there, and who has it, involves a lot of guesswork due to incomplete data from the government, economists say, so estimates vary.

Still, the data shows savings were turbocharged early in the pandemic, when households received stimulus checks and other forms of financial relief from the government, and had little opportunity to spend it amid COVID-19 shutdowns. As the economy recovered, inflation ballooned and the Federal Reserve’s campaign of anti-inflation interest rate hikes increased borrowing costs on loans, eating into the saved-up cash. 

“The prop to overall spending from savings accumulated during Covid—the main buffer against the Fed’s aggressive hikes over the past year—is fading fast,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote in a commentary this week.

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  1. Federal Reserve Bank of San Francisco. "The Rise and Fall of Pandemic Excess Savings."

  2. Federal Reserve. "The U.S. Economic Outlook and Monetary Policy."

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