Consumers Sitting On Huge ‘War Crate’ Of Savings As COVID Aid Ends

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Economists expect the pace of economic growth to slow now that government transfer payments such as stimulus checks and emergency unemployment benefits are in the rearview mirror. But the evidence suggests that the American consumer is sitting on a lot of financial firepower that could be a key driver of growth in the quarters to come.

Why is this important: US consumer spending is massive, accounting for around 70% of GDP.

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What they say : “The sustainability of US consumer spending as stimulus support wanes has been questioned by some investors,” Dubravko Lakos-Bujas, head of US equity strategy at JPMorgan, wrote in a research note on Wednesday.

In numbers : During much of the pandemic, personal income far exceeded expenses. Incomes were boosted by fiscal stimulus while spending was depressed amid lockdowns.

  • Adjusting for how much consumers typically save, the excess savings accumulated during the pandemic amounts to an estimated $ 2.4 trillion.

  • “These significant ‘surplus’ savings should more than dampen any headwinds consumers may face as a result of lower government stimulus payments and rising consumer prices,” Lakos-Bujas argued.

Yes, but: This estimate does not take into account the amount of money used to pay off mortgages, pay off student loans, or even fund a brokerage account.

  • “I’m wary of thinking of this as if it were a giant piggy bank just waiting to fuel a bacchanal spending spree once we get past the worst of the pandemic,” Axios told Axios Wells Fargo Senior Economist Tim Quinlan.

The bottom line: The average consumer has a combination of extra money and less debt.

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