Households Have Saved Extra $1.7 Trillion in Pandemic

Young woman doing home finances in the evening.
•••

Marko Geber/Getty Images

People in the U.S. have saved so much money during the pandemic that national consumer spending could grow at its average pre-pandemic rate for three straight years just by using that savings, according to one analysis.

Relative to February 2020 levels, households have saved an extra $1.7 trillion in the 11 months through January 2021, according to an analysis by BMO Capital Markets. If people decide to spend that money—and a burst of spending is widely anticipated once the economy reopens and COVID-19 vaccines are distributed broadly—it would be enough to power three years of normal consumer spending growth, BMO found. (Put more technically, the $1.7 trillion is roughly three times the average annual growth in consumer spending in the four years before the virus, $526 billion.)

“It represents a tremendous amount of financial firepower for the typical American household,” said Sal Guatieri, a senior economist at BMO. “Not only is the average person working and earning, they saved up during the pandemic.”

With fewer outlets for spending during the pandemic and an added incentive to plan for emergencies, households have been much more inclined to save. Add to that two major injections of cash from the federal government (and perhaps a third coming soon), and savings have ballooned. 

In January, when a second round of stimulus checks hit bank accounts, Americans saved 20.5% of their disposable income, the biggest share since May and more than double the pre-pandemic rate. The savings rate peaked in April at 33.7%, and since the COVID-19 outbreak, hasn’t been lower than 12.5%, a high last seen in the pre-pandemic era in July 1982.

With $1,400 stimulus checks in the offing in a new pandemic relief package being weighed by Congress, that excess savings number is likely to only get larger in the coming months, Guatieri said. 

Consumers with pent-up demand to do things like travel and eat out will likely use the savings as COVID-19 restrictions ease, Guatieri said. And the excess is a good thing, since the savings rate will probably go below pre-pandemic levels next year as people dig into their savings, he said.

“The average American consumer is well positioned to support pent-up demand,” he said.