Americans’ Pandemic-Era ‘Excess Savings’ Are Dwindling for Many

Infusions of government cash that warded off an economic calamity have left millions of households with bigger bank balances than before the pandemic — savings that have driven a torrent of consumer spending, helped pay off debts and, at times, reduced the urgency of job hunts.

But many low-income Americans find their savings dwindling or even depleted. And for them, the economic recovery is looking less buoyant.

Over the past 18 months or so, experts have been closely tracking the multitrillion-dollar increase in what economists call “excess savings,” generally defined as the amount by which people’s cash reserves during the Covid-19 crisis exceeded what they would have normally saved.

According to Moody’s Analytics, an economic research firm, these excess savings among many working- and middle-class households could be exhausted as soon as early next year — not only reducing their financial cushions but also potentially affecting the economy, since consumer spending is such a large share of activity.

In April 2020, after the pandemic’s outset, the nation’s personal saving rate — the percentage of overall disposable income that goes into savings each month — jumped fourfold from its February 2020 level to 34 percent. Some of that spike in savings resulted from government checks of up to $1,200 sent to most Americans; some simply stemmed from reduced spending by firmly middle-class or affluent households during lockdowns.

The rate peaked again at 26 percent this past spring after another round of direct federal payments.

But the personal saving rate doesn’t account for how those savings are distributed. Wealthy households, for instance, have saved the most.

“We do tend to see these broad-brush-stroke economic figures and assume that they apply to the broadest part of the populace,” said Mark Hamrick,the senior economic analyst at Bankrate, a personal finance company. “There’s a significant cross-section of the American public which is financially fragile.”

New research by the JPMorgan Chase Institute, which assesses the bank accounts of 1.6 million families, found that low-income families experienced the “greatest percent gains” during each round of stimulus, yet also exhausted their balances faster. That’s in part because those households went into the crisis with the thinnest financial buffers.

The median balance among higher-income families (defined as those earning more than $68,896) was roughly 40 percent higher in September than two years earlier. The typical low-income family (those earning less than $30,296) experienced a much larger increase in relative terms — 70 percent — but that represented a total cash balance of only about $1,000.

And households making $30,296 to $44,955 also made significant gains compared with 2019, yet typically had less than about $1,300 in cash on hand. In a silver lining, the report found that the cash balances of families with children appear to have been helped by the three rounds of monthly child tax credit payments that began in July, which provided up to $300 per child under 6 and up to $250 per child 6 to 17.

“I’ve been trying to ask myself this question: Is this a lot or is this a little?” said Fiona Greig, a co-president of the JPMorgan Chase Institute. Ms. Greig said that when reviewing the data, she was torn between hope — when seeing that “families had a doubling of balances in some cases when they received their stimulus checks” — and disappointment knowing “there are some families for whom this is really all they have.”

By October, the U.S. personal saving rate, which had peaked above 30 percent, had reverted to its December 2019 level of 7.3 percent.

Technically, most households are financially better off now than before the crisis by several measures, an anomaly after a recession. Still, the fading impact of pandemic aid is quickly being felt. In July, one in three Americans reported having less money to fall back on in an emergency than before the pandemic,according to a Bankrate survey. Only one in six reported having more.

In a commentary published on a Federal Reserve Bank of New York blog in April, four economists argued that “although large by historical standards, the savings accumulated by U.S. households during the pandemic do not appear to be ‘excessive’ when set against the extraordinary need of many American families.”

Millions of Americans could be buffeted by financial volatility again with little safeguard as new variants of the virus emerge. For some, that reality has already begun.

“It was hard even before the pandemic hit,” said Maria Patton, a 57-year-old former real estate agent whose finances were ruined by a recent divorce. “And when the pandemic hit, it became impossible, almost.”

Ms. Patton, who has a teenage son, had just been hired at Nordstrom in Los Angeles when the virus surged and she was laid off. Despite immediately applying for unemployment insurance in March 2020, she went more than two months without receiving benefits. She tried to find work as a nanny — which had been her most recent employment — but wound up moving home to Tennessee, where she figured the cost of living was more affordable.

As she was moving in the middle of last year, she received back payments for all the weeks she was eligible for Pandemic Unemployment Assistance — an emergency federal program to help freelancers and others who do not ordinarily qualify for state benefits — which amounted to a lump sum of $15,000. Much of that cash, Ms. Patton says, went to paying down debt, as well as “paying for medical insurance out of my pocket” because she can’t afford health care coverage, and living in a hotel because landlords in Nashville didn’t like her credit situation.

Ms. Patton used more of her savings in January to move the two of them to Denver for a $25-an-hour nanny job she found online, which went well until she got Covid-19 and had to quit. Now she and her son work for Amazon Fresh, the grocery delivery service, making $15 an hour. Her savings dried up in September.

“Now, I’m right back where I was,” she said. “I feel like a loser. I feel like a failure.” Making too much to qualify for assistance but too little to afford stable housing, she fears she and her son will be living out of her car soon after the holidays.

The drawing down of households’ cash will test competing theories about the extent to which those savings have increased worker power and wages and how much they contributed to labor shortages, inflation and even supply chain snags.

There has been wide agreement among business leaders and economists that after decades of wage and income stagnation, the burst in savings has eased poverty while giving employees and job seekers more leverage. But there is less agreement about whether this development has had unintended, negative consequences.

The cash buffer “gives people some discretion over whether they take the first job that’s available or if they want to leave the work force altogether for a time,” said James K. Galbraith, a progressive economist at the University of Texas at Austin.

“There may well be long-term lasting benefits,” Dr. Galbraith argued. “If in the short run, in order to bring people back into the work force, employers raise the low wages that they’re offering, then they’re probably not going to be in a position to cut them” down the road.

Wages were up 4.8 percent overall in November from a year earlier and were much higher in sectors like leisure and hospitality.

Many investors and business owners are wary of these wage gains continuing, contending that companies may pass more of their labor costs on to customers and that they may threaten companies’ profitability — or even their viability. With job openings at record levels, a large share of business groups remain hopeful that more people will accept wages at their current levels as their savings diminish.

A crop of high-profile economists in both major political parties contend that measures like the aid package from the spring, while well intentioned and effective in warding off some impoverishment, have caused consumer spending to outstrip supply this year as the economy reopened, worsening inflation and straining supply chains.

“From a macroeconomic perspective, it would certainly be helpful if consumer demand were to cool off,” said Michael R. Strain, an economist at the American Enterprise Institute, a right-leaning think tank. “Rooting for low-income households to have less savings is not great, but I think it’s important to remember low-income households are the ones who are hurt the most by inflation. It doesn’t sit well thinking, ‘Boy, it’d be great if households burned through their excess savings.’ But we’re not in a normal period.”

A Bank of America report in November noted that price increases for some goods, especially in food and energy categories, were “cutting the spending power of less-educated households by 4.6 percent on an annualized basis, compared to 3 percent for more-educated households.”

Still, a report from J.P. Morgan points out that consumers are likely to “eat into their accumulated excess savings to offset rising prices,” suggesting that vulnerable households could potentially face an even greater inflation challenge if those savings were absent.

Moody’s Analytics estimated that there was still $2.5 trillion left in overall excess savings as of October and that the total would decrease by $50 billion a month on average through the end of next year — with the fastest declines among those with the lowest incomes.

That mathematical modeling, by its nature, renders in statistics what many are feeling in more palpable ways. “The people looking at the data aren’t the people trying to put food on the table,” said Ms. Patton, the real estate agent turned Amazon Fresh worker. “The people that are writing this and thinking this have never struggled right now.”