American spending power has increased—possibly thanks to the federal stimulus packages.
- Americans held roughly $1 trillion in liquid capital in 2019 and that number has increased to $4.7 trillion in the second quarter of 2022, according to the Federal Reserve.
- The federal government’s stimulus checks paid $1.5 trillion to Americans over the course of the pandemic.
- U.S. consumer spending increased from $14.8 trillion in February 2020—before the pandemic lockdowns—to $17.6 trillion in September 2022.
Why it’s Important
Trends suggest that large portions of the American population are growing their finances and spending power—and that an increase this intense is unprecedented. The stimulus poured a lot of money into the economy and it is possible that doing so has helped foster savings since.
“As should be clear from the accompanying chart nothing like this has happened in the past 70 years—though consumer spending statistics point to something similar having occurred during World War II,” says Bloomberg’s Justin Fox.
“Those who kept their jobs and/or were above the stimulus-check income limits enjoyed windfalls from the stock and housing markets. Spending options were few, especially early in the pandemic, and until recently interest rates were so low that there wasn’t much point in moving money out of one’s checking account (or from under the mattress).”
The rate of increase in consumer spending might not go up much longer. The peak of spending power came in the second quarter but the personal savings rate has dropped substantially in the quarter since.
“The U.S. personal savings rate (disposable income minus outlays, divided by disposable income) was 17% in 2020 by far the highest annual rate since World War II. The record, 27.9%, was set in 1944 … The savings rate fell to 3.3% in the third quarter, the lowest it’s been since hitting 3% in the fourth quarter of 2007, at the beginning of the Great Recession,” says Fox.
“A cash cushion can insulate consumers from the Fed’s rate hikes, but that probably makes it harder for the central bank to lower inflation, forcing even more rate hikes. It will be interesting to see if third-quarter numbers, due in December, finally show a drop.”