Edward Conard

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  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “There are an amazing number of good ideas and interesting points made in Unintended Consequences. The thinking underlying it, and the obvious depth of understanding of the author, are very impressive.” - Steven Levitt, coauthor of Freakonomics; 2004 John Bates Clark Medal
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  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
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Upside of Inequality Oxford Unintended Consequences

AI Summary. Researchers estimate U.S. households' pandemic-era excess savings peaked at $2.1tn and were drawn down at an average pace of about $70bn per month before being depleted. The depletion is unlikely to cause households to sharply cut spending as long as they can support consumption through continued employment or wage gains, other wealth, and more debt.

Hamza Abdelrahman and Luiz Edgard Oliveira Federal Reserve Bank of San Francisco
Date Posted:

According to a @sffed estimate, US pandemic-era “excess savings” were fully exhausted as of March 2024. They argue the rundown of excess savings need not cause sharp cuts in consumer spending, due to higher labor income and non-pandemic-related savings.

Will the depletion of pandemic savings sharply reduce consumer spending?

Core argument: Aggregate U.S. excess savings are estimated to have peaked at $2.1 trillion in August 2021 and were steadily depleted over the following 2½ years.

We estimate that excess savings at the aggregate level peaked at $2.1 trillion in August 2021 and were steadily depleted over the subsequent 2½ years. Households drew down their excess savings at an average pace of $70 billion per month since September 2021, although this drawdown accelerated to about $85 billion per month since last fall relative to the average pace for the entire period. Figure 2 shows this monthly accumulation, in blue, and subsequent drawdown, in red, of pandemic-era excess savings. The depletion of these excess savings is unlikely to result in American households sharply cutting their spending levels as long as they are able to support their consumption habits through continuous employment or wage gains, other forms of wealth—including non-pandemic-related savings—and higher debt.

Takeaways by Macro Roundup® AI

  1. Aggregate U.S. excess savings are estimated to have peaked at $2.1 trillion in August 2021 and were steadily depleted over the following 2½ years.
  2. Households drew down excess savings at an average pace of $70 billion per month since September 2021, with the drawdown accelerating to about $85 billion per month since the prior fall.
  3. Depleted excess savings are unlikely to prompt sharp spending cuts by American households as long as they sustain consumption through continuous employment or wage gains, other forms of wealth, and higher debt.

Related Articles:

  • The Rise and Fall of Pandemic Excess Wealth — Real household net worth peaked at about $13tn above its pre-pandemic projected path before falling back to that path, while real financial assets peaked roughly $10tn above trend and then dropped to about $7.3tn below it. The shortfall in financial assets is attributed mainly to lower equity holdings, which fell 17%.
  • The Rich Have all the “Excess” Cash Now — Excess cash balances outside the top 1% have mostly disappeared, but the author argues their liquidation did little to finance consumer spending, which has been driven mainly by wage income. Relatively low household debt leaves many Americans room to spend above their income, potentially aided by lower interest rates.
  • Spending Down Pandemic Savings Is an “Only-in-the-U.S.” Phenomenon — Household saving rose in the United States and other high-income economies during the COVID-19 pandemic, but only in the U.S. and Canada did income-support measures push incomes well above pre-pandemic trajectories, while consumption fell everywhere. The divergence between U.S. and foreign saving behavior has no clear explanation.
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