Consumer spending — a key support to the U.S. economy — has been bolstered by excess savings accumulated during the pandemic, but that war chest is dwindling, Fitch Ratings says.
In a new report, the rating agency said that the boost to U.S. consumer spending from the cushion that households built up — through a combination of government income supports and reduced spending opportunities during the pandemic — has “been significant, but is likely to fade.”
As it stands, consumers are still sitting on approximately US$900 billion in excess savings, Fitch said.
And, if consumers continued to deplete those savings by US$73 billion per month (the recent average rate), the cushion should last until mid-2024.
“This would suggest scope for consumption to remain resilient for quite a while,” it said.
However, the rating agency said that the remaining excess savings will likely not all be spent for a couple of reasons.
For one, some of this saving has been invested in equities, which are less readily converted into consumer spending.
And, the majority of the savings that went into bank deposits are held by higher-income households that are less likely to spend it.
For instance, it said that it’s estimated that, as of the end of 2022, 80% of retail bank deposits since the onset of the pandemic (in the first quarter of 2020), “accrued to the top 20% of earners.”
“Fitch estimates that the cumulative stock of excess savings has already fallen by 60% from its peak, and a substantial share of the remaining cushion is unlikely to be spent as it accrued to higher income households,” said Olu Sonola, head of U.S. regional economics, in a release.