Have US Households Depleted All the Excess Savings They Accumulated During the Pandemic?

Abstract

During the COVID-19 pandemic, US households accumulated a historically high volume of personal savings. As the crisis waned, personal savings started to decline. Economists disagree on whether households have drained their excess savings, and they disagree on which income group is more likely to have done so. The lack of consensus stems from different assumptions about today’s long-term saving rate, which is used as a benchmark to define excess savings. If households need to set aside a higher share of their income now relative to before the pandemic, then pandemic-era excess savings have been almost entirely depleted. If households need to set aside the same share as the pre pandemic average (6.2 percent), then only about one-fifth of the excess savings has been depleted. Under the latter assumption, most income groups still had access to substantial amounts of savings through the end of 2022, and the rates of depletion of excess savings were quite similar across income groups.

Keywords: excess savings, consumption, disposable income, wealth inequality, COVID-19

JEL Classification: E01, E21, E25