- Americans have saved $1.6 trillion since the pandemic started, per the Commerce Department.
- That’s roughly half of overall global savings during the pandemic, and the same as South Korea’s GDP.
- It’s also greater than the output gap, or economic hole created by Covid-19, signaling a coming economic boom.
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Americans are ready for a shopping spree.
Coronavirus lockdowns and two stimulus packages left American consumers sitting on approximately $1.6 trillion of pent-up spending, according to Commerce Dept. figures released on Friday.
As the pandemic shut down the experience economy, Americans shifted away from social leisure – recreational time spent in groups – and toward activities enjoyed alone. Now, 11 months later, spending on this kind of solitary leisure hasn’t been enough to bring the economy back to its 2019 levels, let alone beyond. The many Americans who weren’t hit by job loss or pay cuts have built a fatter savings cushion than they would have otherwise.
Three striking data points put the American consumer’s $1.6 trillion in dry powder into perspective.
(1) Americans account for half of global savings during the pandemic
Worldwide, consumers saved an extra $2.9 trillion globally during the pandemic, per Bloomberg Economics estimates.
That means Americans’ $1.6 trillion in savings accounts for slightly more than half of the global number, followed by China, Japan, and major European nations like Spain and the UK.
Bloomberg expects these savings to continue to grow as restrictions continue and governments implement more stimulus, notably President Joe Biden’s $1.9 trillion relief package. But as the vaccine rollout picks up speed, more spending may happen sooner rather than later.
(2) American savings are equivalent to South Korea’s GDP
The amount of spending money Americans are currently sitting on is the equivalent of another major industrialized country’s economy. As of 2019, South Korea’s GDP, or annual output, was $1.6 trillion.
For context, America’s GDP is $21.5 trillion.
Experts are currently projecting 4.6% growth for US GDP this year, per Bloomberg. If Americans spend all the money they saved in the past year, that could jump to 9%; whereas if they don’t, the GDP forecast could drop to 2.2%.
(3) Americans saved more than the decline in spending
Experts continue to debate how big a hole the coronavirus left in the economy. Biden, Wall Street, and the Federal Reserve see a larger hole, while the Congressional Budget Office (CBO) and moderates see a smaller one, Insider’s Ben Winck reported.
According to the Congressional Budget Office, the potential total output of the US economy as of the fourth quarter of 2020 was about $22.15 trillion. But the Bureau of Economic Analysis’ estimate for GDP that quarter was just $21.49 trillion, suggesting an output gap of around $660 billion.
Americans’ $1.6 trillion in savings is therefore roughly $1 trillion bigger than the output gap. That means consumers won’t need to collectively spend the entirety of their pandemic savings to close the output gap.
While the full $1.6 trillion is unlikely to be spent, the changes seem good that the output gap will be more than filled when the economy eventually reopens. In fact, it could be more spending than the US economy has seen in some time, given the historically weak recovery from the Great Recession of 2008.