Americans’ $2.1T in Savings Is Nearly Depleted

Americans currently have less $190 billion left from the $2.1 trillion windfall they had accumulated during the pandemic—and even that stash is likely to be gone by next month.

This is according to Federal Reserve Bank of San Francisco research.

“Our updated estimates suggest that households held less than $190 billion of aggregate excess savings by June,” wrote Fed researchers Hamza Abdelrahman and Luiz Oliveira in a Wednesday blog post on the bank’s website.

“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,” Abdelrahman and Oliveira wrote.

In March 2023, the pair published research indicating Americans had $500 billion of excess savings, down from a peak of $2.1 trillion in August 2021.

The Bureau of Economic Analysis has since revised these savings figures down—and consumer spending up—for the fourth quarter of 2022 and first quarter of 2023, the researchers said.

“The combined revisions brought down the Bureau’s measure of aggregate personal savings by more than $50 billion,” Abdelrahman and Oliveira said.

Many economists believe the trillions in savings that Americans accumulated while they were quarantined in their homes for more than two years spared the U.S. from a recession and, by association, widespread job losses.

The resilient labor market, in fact, has continued to defy Federal Reserve interest rate increases and forecasters’ predictions of an economic downturn.

Even the Federal Reserve policymakers acknowledged that dwindling U.S. savings could soon impact the economy, as revealed Wednesday with the publication of the minutes from their July 25-26 meeting.

The Fed officials acknowledged at that meeting that they have continued to be astonished by the vitality of the economy and robust consumer spending.

However, Fed policymakers do see the effects of their 11 interest rate increases during the past two years to finally be taking effect.

“Tight financial conditions, primarily reflecting the cumulative effect of the committee’s shift to a restrictive policy stance, were expected to contribute to slower growth in consumption in the period ahead,” according to the Federal Open Market Committee minutes.

Fed officials also made note of Americans’ dwindling savings, softening labor market and consumers’ “increased price sensitivity.”