Looking at the impact of covid on consumer cash accumulation.

1. Unraveling the Complexities of
Consumer Balances Sheets Post-Covid
Created by: Salvatore Tirabassi
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2. Unraveling the Complexities of
Consumer Balances SheetsPost-
Covid
As discussions go round and round regarding the potential impact of consumer
finances on an impending recession or a more gradual “soft landing,” recent
media narratives have brought attention to a remarkable surge in the savings
rate following the COVID-19 pandemic.
While the savings rate serves as a useful metric, providing insights into
where consumers are directing their excess cash, it falls short in offering a
nuanced understanding of the actual cash buildup. Recently disclosed data has
ushered in a paradigm shift, challenging preconceived notions about consumer
savings.
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3. Unraveling the Complexities of
Consumer Balances SheetsPost-
Covid
The revelation suggests that consumers have saved more cash
than previously estimated, with reported savings rates reaching 15.4% in 2020
and 11.4% in
2021—figures that are undeniably significant.
Prompted by this new data report, my focus has been directed towards the
Federal Reserve’s
reporting on Currency and Checkable Deposits, a comprehensive analysis tracking
the ebb and flow of cash in checking accounts. This alternative data
perspective paints a more optimistic picture of the consumer’s financial
standing, revealing that the average US consumer is holding multiples of cash
compared to pre-COVID levels. This newfound understanding underscores the
robustness and sustainability of consumer balances, fueled by higher average
savings rates. Document Copyright 2023

4. Unraveling the Complexities of
Consumer Balances Sheets Post-
Covid
Let’s explore how Currency and Checkable Deposits have evolved for different
segments of the population, particularly the Bottom 50% and Top 50% of households.
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5. Unraveling the Complexities of
Consumer Balances Sheets Post-
Covid
Cash and checkable deposits for the bottom 50% of households by wealth. Federal
Reserve, 2023.
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6. Unraveling the Complexities of
Consumer Balances Sheets Post-
Covid
The charts vividly illustrate the substantial growth in cash availability,
with the Bottom
50% experiencing a 2.5x increase from January 2020 to August 2023, and the
Top 50%
boasting over 3.5x more cash during the same period. Intriguingly, both
groups have
begun consuming their accumulated cash, a trend that commenced in June 2022
for the
bottom 50% and October 2022 for the top 50%.
These data points collectively paint a comprehensive picture, indicating
that, on
average, US consumer balance sheets remain resilient and robust. The runway
for these
balance sheets to return to pre-COVID cash levels appears long. However, it’s
crucial to
acknowledge that these are averages across all households, and the
sustainability of
cash levels varies by the decile of wealth.
Cash and checkable deposits for the top 50% of households by wealth. Federal Reserve,
2023.
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7. Unraveling the Complexities of
Consumer Balances Sheets Post-
Covid
In dissecting this narrative further, it becomes evident that the erosion of
cash is not
uniform and is likely to follow a bottom-up trajectory. This divergence is
observable as
the bottom 50% experiences negative growth since June 2022, preceding the top
50%
that exhibits similar trends from October 2022. The implication is that less
affluent
households might feel the impacts of a potential recession earlier than their
wealthier
counterparts.
As we navigate the complex terrain of economic forecasting, it’s essential to
recognize
that while consumer balance sheets play a role, they may not emerge as the
primary
driver of an economic slowdown. Other economic factors, such as hiring
trends, wage
dynamics relative to inflation, and industrial output, are anticipated to
wield a more
substantial influence in shaping the trajectory of the economic slowdown.
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