US households are on the brink with excess savings likely to be depleted by month-end, San Francisco Fed says

• Savings built up by American households during the pandemic are all but gone, the San Francisco Fed says.
• US household savings have fallen from a record $2.1 trillion in 2021 to around $190 billion as of June, per their data.

US households are poised to run out of the excess savings accumulated since the pandemic by as early as the end of September, the San Francisco Fed has warned.

Excess household savings in the US have fallen every month for the past 23 months and are poised to run dry in the third quarter, according to their research.

In 2021, Americans had amassed a record $2.1 trillion in excess savings, spurred by government stimulus checks and a drop in in-person spending.

But that had fallen to just $190 billion by June, San Francisco Fed research suggested, and is projected to be falling at a rate of $100 billion per month.

"Our updated estimates suggest that households held less than $190 billion of aggregate excess savings by June. There is considerable uncertainty in the outlook, but we estimate that these excess savings are likely to be depleted during the third quarter of 2023," San Francisco Fed analysts said in a recent blog.

As of July 2023, the US personal savings rate stood at 3.5% – below pre-pandemic averages.

This measures the percentage of individuals' incomes remaining after paying taxes and spending money on consumption.

A drying-up of savings could have wide-ranging effects on the economy, and some analysts believe it would hurt consumer spending, as extra cash runs out and student loan payments restart in October.

"Our estimate of excess savings for US households when adjusting for inflation is now fully exhausted from a 2021 high of $2.1 trillion, with risk of widening imbalance if outlays accelerate," JPMorgan analyst Marko Kolanovic said last month.

Americans' cash pile has previously kept consumer spending afloat ever since COVID-19 restrictions were relaxed, supporting the economy even as the Federal Reserve raised interest rates steeply since last spring.

But historically high inflation since mid-2021 has eaten into the savings, as prices of everything from energy to food surged. Inflation hit a 40-year high of 9.1% in mid-2022, but has since slowed to 3% as of last month, in part tamed by the Fed's aggressive rate hikes.