Pent-up consumer demand is a “coiled spring” after months of lockdown

Households across 21 rich countries have built up excess savings of $3trn because of Covid lockdowns and stimulus packages. And they're itching to spend it.

The total net worth of US households in the final quarter of last year was $122.9trn, says Justin Lahart in The Wall Street Journal. The figure had climbed from $111.4trn a year before. That’s unusual for a recession: after 2008 US household wealth fell and “then took years to recover”. The gains have been driven by rising stockmarkets and property prices, but Americans also have more cash on hand: $2.8trn, a 21% annual increase. 

Households across 21 rich countries saved about $6trn during the first nine months of last year, says The Economist. That is roughly double what they would probably have put aside absent Covid-19, generating “excess savings” of $3trn. The rise in global savings does not follow the same pattern everywhere. In the UK and the eurozone it has been driven by lower expenditure owing to closed restaurants and more modest holidays. In Japan and the US, by contrast, it represents a rise in household income thanks to government stimulus cheques. 

The US stimulus model has also particularly helped lower-income groups, who are more likely than the wealthy to spend rather than stash extra cash. The US consumer is back in the driving seat of the world economy. 

In the UK, households have put aside £160bn in excess savings during the pandemic, or 12% of GDP, says Sanjay Raja in a Deutsche Bank note. Credit-card debt is also down by nearly 20% over the past year. These gains have been captured mostly by middle- and higher-income earners, with lower income groups reporting taking on more debt. Around 5%-10% of that savings pile is set to be spent over the coming quarters, delivering a “0.5% to 1% boost to GDP”. The impetus from excess savings will be “the driving force behind” the UK recovery this year.

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