Household Savings are Exhausted

This has been long dreaded by economists and market participants since people got $2 trillion in stimulus checks back in 2020.

But the saga has now concluded.

In June of 2023 cumulative excess savings hit -$91 billion, down from the $2.1 trillion peak in mid-2021.

Household liquid holdings are also reverting back to normal, and estimated to hit “normal” by mid-2024.

What does this mean?

Inflation was caused by $5 trillion being injected straight into the lifeblood of America, the middle class consumer.

That inflation is what caused the Federal Reserve to increase interest rates.

Those higher interest rates sent the stock market lower.

Those higher interest rates also pushed forecasters to project a pending recession.

A cause of a recession is that consumers start to get nervous about their savings and pull back, if those excess savings are already gone they have even more incentive to pull back spending.

Usually a recession is bad for markets, and for consumers.

But a recession is necessary, today, for the advancement of the business cycle.

I’ve argued that the market has already anticipated and priced down any recession and may just be looking past any near term proof of that being the case. And I stand by that, as outlined in my post “Meaningfully Inverted”.

For now we shall see what happens to the US consumer in the coming months/year.

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