Will Americans’ pandemic savings stash keep the economy rolling?

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Will Americans’ pandemic savings stash keep the economy rolling?
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An obvious concern is high inflation

to pass President Joe Biden’s “Build Back Better” programme will lead to further retrenchment.

That matters in trying to assess the potential impact of excess savings. The wealthy typically spend a low share of their incomes. The extra cash sitting in their hands is more likely to go towards investment accounts than grocery purchases. A final concern is high inflation. That eats into both wealth and incomes. Adjusted for rising prices, wage growth in America has turned sharply negative over the past half-year. Similarly, the real value of savings looks a bit less impressive given the reduction in purchasing power.

This may already be happening. Consumer borrowing soared in November by $40bn, the most on record, as credit-card usage soared. Some observers saw that as a sign that households were strapped for cash. Alex Lin of Bank of America disagrees. “An increase in credit-card spending can be a function of greater re-engagement in the economy,” he says. “Americans like to use their credit cards to rack up points for travel or restaurants, and that is not necessarily a sign of danger.

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