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Consumers still have $1.3 trillion in extra spending power: Morning Brief

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Tuesday, October 4, 2022

Today's newsletter is by Sam Ro, the author of TKer.co. Follow him on Twitter at @SamRo.

Excess savings are shrinking, but balances remain high

Despite inflation’s negative impact on purchasing power and sentiment, consumer spending growth continues to be remarkably resilient.

On Friday, we learned personal consumption expenditures increased by 0.4% month over month in August. Adjusted for inflation, they were up 0.1%.

Why is this happening? It’s simple: Consumers have money.

Image Courtesy Sam Ro
Image Courtesy Sam Ro

In addition to benefiting from wage increases compounded by persistent job growth, consumers are sitting on a mountain of excess savings — the extra cash consumers piled up since February 2020 thanks to a combination of government financial support and limited spending options during the pandemic. It’s worth clarifying that this is in excess of what would’ve been saved assuming the pre-COVID rate of saving.

According to Wells Fargo, consumers had accumulated as much as $2.1 trillion in excess savings during this period. That’s a lot of extra spending power in an economy with $25 trillion in annual GDP.

However, these savings are rapidly declining amid high inflation. Wells Fargo estimated accumulated excess savings fell to $1.3 trillion as of August.

Image Courtesy of Sam Ro
Image Courtesy of Sam Ro

The good news

This extra cash is proving a godsend for a lot of consumers who’ve been slammed by inflation.

“It looks like consumers have been eating into the ‘excess saving’ built up over the earlier stages of the pandemic to fuel recent spending,” JPMorgan economists wrote on Friday.

It’s of course great news for the businesses selling goods and services to these consumers.

These strong finances are helping to prevent any economic downturn from evolving into a calamity.

The bad news

Ironically, these excess savings may be exacerbating inflation, which the Federal Reserve is trying to cool by slowing demand in the economy. If consumers can afford to pay higher prices, then businesses won’t have much incentive to cut prices — thus keeping inflation high.

So it’s with mixed emotions that we watch excess savings dwindle. On one hand, it means consumers will eventually have a much more difficult time paying for what they need. On the other hand, this “pain” is exactly what the Fed is expecting to bring prices down.

For now, it looks like consumers still have a lot of excess savings to tap into, which unfortunately will prevent prices from cooling more quickly.

What to Watch Today

Economic calendar

  • 10:00 a.m. ET: Factory Orders, August (0.0 expected, -1.1% during prior month)

  • 10:00 a.m. ET: Factory Orders Excluding Transportation, August (0.2% expected, -1.0% during prior month)

  • 10:00 a.m. ET: Durable Goods Orders, August final (-0.2% during prior month)

  • 10:00 a.m. ET: Durables Excluding Transportation, August final (0.2% during prior month)

  • 10:00 a.m. ET: Non-defense Capital Goods Orders Excluding aircraft, August final (1.3% during prior month)

  • 10:00 a.m. ET: Non-defense Capital Goods Shipments Excluding Aircraft, August final (0.3% during prior month)

  • 10:00 a.m. ET: JOLTS Job Openings, August (11.088 million expected, 11.239 million during prior month)


  • Acuity Brands (AYI)

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