To The Moon

It is estimated that they have excess savings of $770 billion, which will be completely depleted by 2Q24; low-income groups may have already depleted their savings by the end of last year.

The massive fiscal stimulus since the outbreak of the pandemic has led to US residents accumulating more than $2.3 trillion in excess savings. However, subsequent fiscal retrenchment, declining real incomes, and the recovery of consumption have all accelerated the depletion of excess savings by US residents. (Real disposable income has fallen below trend levels, while actual consumption spending has recovered to pre-pandemic trend levels.)

The forecast results for excess savings are highly sensitive to the methods and trend assumptions used, so although the two calculation methods currently receiving market attention (the San Francisco Fed's calculation vs. Aladangady et al.'s calculation) both show that excess savings peaked at $2.1-$2.3 trillion in September 2021, there is a significant difference in when this excess savings will be depleted. The San Francisco Fed's calculation shows that excess savings will be depleted by 3Q23, while our simulation based on Aladangady et al.'s calculation method shows that excess savings will not be completely depleted until 2Q24. This nearly six-month time difference will affect our judgment of US consumption resilience, and thus affect our predictions of key indicators such as employment and inflation.

Aggregate personal savings versus the pre-pandemic trend

The San Francisco Fed predicts that excess savings have been largely depleted. Using the absolute size of savings for calculation and defining the portion of savings that exceeds the pre-pandemic trend as "excess savings," the peak accumulation of excess savings was $2.1 trillion in September 2021, and as of July 2023, it has fallen to $81 billion, with depletion expected in 3Q23.

According to Aladangady et al.'s calculation method, excess savings are expected to be depleted by 2Q24. This method calculates excess savings by subtracting potential savings from actual savings using the portion of income and spending that exceeds pre-pandemic trends. This means that excess savings will not be completely depleted until 2Q24. In addition, from the perspective of financial assets, the amount of monetary assets held by residents has fallen from its peak of $18 trillion, but it still far exceeds pre-pandemic levels ($13 trillion). This trend may indicate that excess savings still exist to some extent, and it will take time for them to be completely depleted.

Aggregate excess savings following onset of recessions

Besides, there are significant structural differences among different income groups.

Low-income groups "can't make ends meet," and their excess savings were depleted by the end of last year. Thanks to the fiscal stimulus after the outbreak of the pandemic, the income and expenditure ratios of low-income groups have both increased (income ratio: 2.9% in 2019 vs. 3.1% in 2020; expenditure ratio: 9.1% in 2019 vs. 9.4% in 2020), and excess savings reached a high point of $110 billion during this period, accounting for about 5% of the total.

The rapid rise in wages for low-income groups has to some extent offset the erosion caused by high inflation, with the highest year-on-year growth rate reaching 7.5% in November 2022. However, a turning point in wage growth for low-income groups occurred later, and the low level of stock savings and insufficient inflow of funds may cause low-income groups to deplete their excess savings at the end of 2022.

The income and expenditure of middle-income groups are relatively stable, so they still have a significant amount of excess savings. Since November 2021, the wage growth rate for middle-income residents has been consistently lower than the CPI, but thanks to expenditure ratios that are close to pre-pandemic levels, the consumption rate of excess savings for middle-income groups remains stable.

As of July 2023, residents with income levels between 20-40% and 40-60% have accumulated excess savings of approximately $600 billion, accounting for 78% of the total excess savings, making them the group with the most remaining excess savings, surpassing high-income groups.

The consumption rate of excess savings for high-income groups has accelerated due to lower wage growth and increased spending on consumer goods. High-income groups have lower consumption elasticity for deposits and subsidies, with accumulated excess savings reaching as high as $940 billion, and the top 20% of earners holding over 40% of excess savings.

However, with the recovery of post-pandemic consumption scenarios, service prices have risen, and high-income groups with a higher proportion of service consumption expenditures have accelerated their consumption of excess savings (before the pandemic, high-income groups' service consumption expenditures accounted for 35% of total expenditures, with transportation and entertainment services accounting for over 40%). As of July 2023, excess savings for the top 20% of earners have fallen to 24%.

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