US consumers are telling pollsters they are gloomy; the data, however, says they are not.

The San Francisco Federal Reserve recently analysed the impact of the US government’s $5tn-odd Covid-19 stimulus and concluded that American households had an eye-watering $2.1tn excess savings in 2021, due to that largesse.

Consumers have subsequently run down this cushion. But the research notes that “there is still a large stock of aggregate excess savings in the economy [of] some $500bn . . . households on average, including those at the lower end of the distribution, continue to have considerably more liquid funds at their disposal compared with the pre-pandemic period.” Moreover, it predicts that “these excess savings could continue to support consumer spending at least into the fourth quarter of 2023.” 

Why? One potential explanation is that the data is wrong or, more accurately, incomplete.  Research by economists at the Washington Fed that uses a different methodology, implies that excess savings might already be depleted.

it is possible that consumers are extrapolating a wider fear of rising interest rates, geopolitical risks and/or political gridlock on to their assessment of the economy, creating biases.

Consumers are more cheerful about their personal finances than the macroeconomy. 

Of course, it is also entirely possible — and indeed probable — that both explanations are correct, namely that the polls and data are both incomplete. That is my guess.

Gillian Tett 6 July 2023

https://www.ft.com/content/11d327e3-ac47-437f-86ea-488192cd9661