Policy- Americans' excess household savings are much higher than previously thought.
- Some economists are estimating Americans have $1.2 trillion more saved up than before the pandemic.
Revised government data from the end of September show that the amount of money Americans have saved up relative to pre-pandemic savings is billions of dollars higher than previously thought.
The revisions by the Bureau of Economic Analysis calculated that the household savings rate was lower than previously believed prior to the pandemic. The household savings rate was revised from an annual average of 7.9% between 2017 and 2019 to 6.5%.
Given the lower pre-pandemic baseline, combined with a higher saving rate this year, the amount of excess savings skyrocketed from previous estimates of $400 billion to $1.2 trillion after the revisions, according to JPMorgan.
"These figures now imply households' excess saving may not be exhausted until sometime next year," the analysts wrote in a recent note.
These findings were echoed by Société Générale, whose new estimate of household excess savings increased at the end of the second quarter to around $1.3 trillion compared to estimates of just under $1 trillion per the unrevised data.
The BEA revisions reflected a shift in how it measures income from real estate investment trusts and mutual funds.
This could be good news for the economy
Prior to the revisions, though, many economists thought excess savings would run out quickly. A San Francisco Fed study updated in August estimated excess savings would likely be depleted during the third quarter of 2023.
The revised data suggests Americans still have a cushion to keep their spending going. This may give some Americans more confidence in a soft landing over the next few months. Some economists are also pushing back their timeline for when they expect a recession to come.
This could be good news for an economy experiencing elevated borrowing costs for households and an inflation rate still above the Federal Reserve's 2% target. The Fed's second quarter 2023 data shows US household net worth increased by $5.5 trillion, meaning Americans are spending more while also saving more.
Spending is still up
Americans have been dipping more into their savings stockpiles. Ultimately, savings rates plummeted from 11.4% in 2021 to 3.3% last year. As of August, the rate was 3.9% — well below the 8.9% average over the last few decades.
Still, a large portion of these excess savings are held by wealthier Americans. A Bankrate survey from June shows that nearly half of adults have less savings or no savings compared to the previous year. And over a third have more credit card debt than cash reserves, Bankrate found.
Consumers are continuing to spend — Americans spent 5.8% more in August than a year prior. Even as American perspectives on the economy fall, many are still spending on flights, concerts, and road trips.
Perhaps more excess savings than previously thought could cheer up some Americans gloomy about the economy.