As the weather forecast predicted deep cold to start the year, I remembered to move the stash of soda and beer from our unheated, detached garage into the house; bottles and cans may burst when the liquid inside freezes. As COVID-19 arrived on the scene, we developed a habit of staying stocked up to be ready for impromptu gatherings in our backyard and to hedge the risk of shortages at the store. Clearing the pile proved to be quite a chore, making me sweat despite freezing temperatures.
Our drink inventory wasn’t the only asset that surged last year. Savings throughout the economy were thrown out of normal patterns by pandemic-related stimulus programs. Depleting savings will be one component of a return to normal.
First, some definitions. Saving (singular) is the flow of money retained. In economic measures of consumption, saving is the remainder of personal income not spent after taxes and expenditures. Savings (plural) is the stock of accumulated money in financial assets, like bank accounts and investment funds.
As the crisis took hold in 2020, the flow of saving reached new heights. Opportunities to spend money fell away as social gatherings were cancelled and travel was deferred. Terms for paying essential bills like rent and mortgage payments became lenient. Meanwhile, stimulus payments provided an extra cushion. Most workers maintained their incomes or experienced only a short disruption, while those who lost their jobs benefitted from enhanced unemployment payments. Steady incomes and lower expenses allowed saving to take off: the saving rate has hit exceptional peaks, as high as 34% in April 2020.
Through the interval of stringent lockdowns, some saved money was repurposed into durable goods purchases like home improvement and major purchases like new homes. Then, a reopened economy in 2021 allowed a return to spending on services. An additional COVID relief bill passed last March disbursed more cash, and child tax credit advance payments gave many parents monthly stimulus through the second half of the year. A comfortable savings buffer and a year of disruptions equipped consumers to get out and spend, and we did: as of November, personal consumption expenditures stand 13.5% higher than a year before.