American pandemic savings have depleted faster than other countries. Is that good or bad?

MW American pandemic savings have depleted faster than other countries. Is that good or bad?

By Steve Goldstein

Mohammed El-Erian took to social media on Wednesday to post a chart, drawing on International Monetary Fund research, showing that the U.S. has depleted pandemic savings faster than other economies.

"Note, in particular, the U.S. relative to other advanced economies," said the former Pimco chief executive and current economic adviser to Allianz.

But is it good or bad that pandemic savings are depleted?

If the idea is that Americans are running out of money to spend, it hasn't showed up in the data, yet. There was just unexpected strength in retail sales during March. The Atlanta Fed's GDPNow, an estimate of economic strength based on incoming data, surged to 2.9% for the first quarter, after a fourth quarter in which the U.S. economy advanced by 3.3%.

Related: The U.S. economy is on a hot streak it hasn't seen in 20 years

Dominic White, an economist at Absolute Strategy Research, says there really isn't such a thing as excess savings in any event. It's an estimate, based on the difference between the household savings rate and the trend.

But his bigger point was that government policy during the pandemic created a stock of assets from which consumers can either spend or save, which over time get converted to "excess income." And that's what they have done.

"The irony is that we should be taking precisely the opposite conclusion from the one that the chart is trying to give. American households have reduced their saving rate relative to others because of the sustained improvement in their balance sheets," says White.

According to the Federal Reserve, household net worth as a percent of disposable income was 761% in the fourth quarter, up a bit from the 714% in the fourth quarter of 2019, the last full period before the pandemic started. That's as the U.S. stock market SPX and housing prices have gained ground.

Other countries don't have as vibrant a stock market and also have had to absorb more of the rise in interest rates since the U.S. is unique in fixing mortgage rates over 30 years.

Of course, not every household has seen the benefit of asset price gains. New York Fed data shows rising delinquencies for virtually every form of debt, apart from student loans, where payments just resumed after a moratorium.

"Categories like apparel, home decor, electronics and general merchandise remain weak as lower income consumers continue to be very deliberate about their spending," said Dollar Tree $(DLTR)$ Chairman and CEO Rick Dreiling on a call with investors last month, according to a transcript from S&P Global Market Intelligence.

JPMorgan $(JPM)$ Chairman and CEO Jamie Dimon summed up the situation last week.

"The unemployment [rate] is very low. Home prices are up. Stock prices are up. The amount of income they need to service their debt is still kind of low, but the extra money of the lower-income folks is running out -- not running out, but normalizing, and you see credit normalizing a little bit," he said. "And of course, higher-income folks still have more money, they're still spending it."

-Steve Goldstein

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April 17, 2024 09:21 ET (13:21 GMT)

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