The Big Idea

Households remain flush

| June 9, 2023

This document is intended for institutional investors and is not subject to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors.

One of the most important economic influences coming out of the pandemic was the extraordinary amount of liquidity enjoyed by US households, a residual of unprecedented fiscal largesse divvied out during Covid. Consumers have consistently outperformed consensus expectations, in part thanks to this cushion.  Many analysts have been quick to declare households tapped out recently, but Federal Reserve data, the authoritative source on the household balance sheet, clearly indicates that households still have unusually high liquid assets. That bodes well for the near-term outlook on consumer spending.

Overly complicated

The vast majority of analysis on household liquidity is, in my view, needlessly complicated and indirect.  The popular methodology is to start with a pre-pandemic savings rate, using that as a benchmark.  Then, using the difference between the sky-high savings rates in 2020 and early 2021 and that pre-pandemic benchmark, economists create an estimate of the cumulative amount of excess savings.  The drop in the savings rate in 2022 and 2023 relative to the pre-pandemic benchmark is then used to impute the pace at which households depleted their Covid windfall.

By this calculation, if we use the 2019 average as the pre-pandemic savings rate benchmark, households accumulated about $1.6 trillion in extra savings in 2020 and 2021 and have exhausted a little over $1 trillion of that in 2022 and the first several months of 2023. A recent piece by economists at the San Francisco Fed offers one of the more rigorous examples of this approach and found that households had about $500 billion in extra liquidity remaining.  A number of Street economists have used a similar framework with different parameters and concluded that consumers have burned through their entire pandemic windfall.

The trouble with this analysis is that it relies on a series of assumptions that may or may not be true. For one, what is the right benchmark for the savings rate?  The 2019 average seems an obvious choice, but the 8.8% yearly average was near the highest in over 25 years. If we use 8% instead as the benchmark—closer to the 2018-2019 average—it adds about a quarter of a trillion dollars to the accumulated excess savings and subtracts nearly that much from the drawdown, yielding a very different conclusion.

Moreover, another difficulty with the savings rate analysis is that it does not provide a full accounting of what households did with their windfall.  Given the limits of the personal income and spending data, our choices are “consumed” or “not consumed.”  However, if someone took a part of their 2020 windfall and bought a house or put the money in a retirement account, those funds, while not consumed, would not be available to spend at a later date.  Thus, it is unclear whether all of the “excess savings” in the modelled approach is actually available to spend.

Hard data trumps modeling

The Fed’s quarterly Financial Accounts of the US includes a detailed snapshot of household finances, breaking down the asset side into a number of nonfinancial and financial categories.  These data, though not quite as timely as the monthly savings rate, offer a much more accurate view of household finances.

Rather than rely on a daisy chain of assumptions, it is far simpler and cleaner to use the Fed’s household balance sheet data.  In particular, I have created a series labeled “household liquid assets” that includes households’ assets held as currency, bank deposits, and money market fund shares.  These balances are readily spendable cash equivalents and offer a clean view of the cushion that households have at a given time on top of their regular incomes.

Household liquid assets

Household liquid assets stood at $13.4 trillion at the end of 2019 and had been rising at a rate of close to half a trillion dollars a year over the prior decade (Exhibit 1).  Then asset balances surged by nearly $3 trillion in 2020 and almost $2 trillion in 2021, leaving households with close to $4 trillion more in liquid assets than would have been the case if the pre-pandemic trend had remained in place those two years.

Exhibit 1: Household Liquid Assets

Source: Federal Reserve.

The series peaked in the first quarter of 2022 and has come down in each of the subsequent four quarters.  However, the rate of descent has been glacial compared to the run-up, just over half a trillion dollars over the course of a year.  The first quarter 2023 figure just released was $17.8 trillion.  In contrast, if we extrapolate the pre-pandemic trend through March 31, the implied benchmark level would be approximately $15 trillion. Rather than being a few hundred billion dollars from being tapped out, as most of the savings rate model estimates suggest, the hard data suggest households are still sitting on a multi-trillion-dollar treasure trove of pandemic liquidity.

Real liquid assets

One critique of both the models and the hard data would be that they are limited to nominal data. Inflation has clearly taken a sizable bite out of households’ Covid windfall.  One obvious way to augment this analysis is to adjust the liquid assets series for inflation.  I use the headline PCE deflator to deflate the nominal series (Exhibit 2).

Exhibit 2: Real Household Liquid Assets

Source: Federal Reserve.

Repeating the same analysis as with the nominal series, the end-2019 level for real household liquid assets was just over $12 trillion.  The trend growth over the prior decade had been about $300 billion per year.  During 2020 and 2021, the real series surged by $3.3 trillion, or about $2.7 trillion above what the pre-pandemic trend would have implied.  Since then, the real aggregate has contracted by $1.2 trillion, roughly double the drop in the nominal series.  Still, the level as of the first quarter was still over $14 trillion, whereas the extrapolation of the pre-pandemic trend would yield about $13 trillion. So, even after adjusting for the punishing inflation of the past few years, households still have an extra $1 trillion or so of spendable assets on top of what might have been the case in the absence of the pandemic.

Checking accounts

Another potential complication in these data is that households might shift the mix of their assets based on macroeconomic conditions.  Wealthy households may choose to de-risk their portfolios, moving funds from stocks to “cash,” most likely a money market account.  Alternatively, households, wealthy or otherwise, could choose to boost their “cash” holdings in response to the highest short-term interest rates seen in 15 years.  Such moves would lead to a rise in liquid assets but not necessarily signal an increase in spending power.  One could argue that the little bump in liquid assets seen in 2008 in 2009 reflected this de-risking of investment portfolios rather than a windfall, though keep in mind that there was a sizable fiscal stimulus then too in the form of rebate checks in 2008 and again in 2009.

In any case, we can get a better read on this hypothesis by further limiting the scope of the household balance sheet view to currency and checkable deposits, a component of the broader “liquid assets” aggregate (Exhibit 3).  Presumably, especially in a rising rate environment –since the preponderance of checking accounts do not pay significant interest—these balances offer an even purer read on households’ liquidity position.

Exhibit 3: Household checkable deposits and currency

Source: Federal Reserve.

There is no need to draw a trend line on this chart!  Checkable deposit balance roughly quadrupled from the end of 2019 to September 30, 2022, when they peaked, moving from $1.2 trillion to $4.8 trillion.  Since then, they have inched down by about $250 billion but remain unquestionably elevated.  This offers an even cleaner sign that households remain flush, and by more than a few hundred billion dollars.

Analysis from Bank of America Institute backs up the aggregate numbers.  Using internal data, economists at the Institute found that customers who maintained a checking or savings account continuously with Bank of America from 2019 through April 2023 had balances at the end of April that were 40% to 70% higher than the 2019 average.  Moreover, that was true across all income cohorts.  In fact, it was those with the highest incomes that had the smaller increases and those with lower incomes that had seen the largest rises.


The Federal Reserve’s Financial Accounts data indicate that households continue to hold a substantial cushion of spendable funds accumulated during the pandemic.  This, along with robust labor income growth, helps to explain why real consumer spending has continued to advance, even in the face of punishing inflation. Growth in real consumer outlays accelerated to a 3.8% annualized pace in the first quarter, making up for a sub-par fourth quarter, and after a strong April, the second quarter is shaping up to register a real gain in the neighborhood of 2%.

Real disposable income has advanced by 3.4% over the past 12 months, noticeably faster than the 2.3% rise in real spending over that period.  The ongoing strength in the labor market, which is generating both sharp employment gains and sizable wage hikes, has meant that households have needed to fall back less on their pandemic cushion than would otherwise have been the case.  As a result, two years after the last major federal government Covid stimulus package was passed, households are still holding on to a good deal of the distributed funds.  This promises to be a tailwind for consumer spending, at least for a while longer, and will continue to make the FOMC’s job of cooling the economy and inflation harder than most had expected.

Stephen Stanley
1 (203) 428-2556

This material is intended only for institutional investors and does not carry all of the independence and disclosure standards of retail debt research reports. In the preparation of this material, the author may have consulted or otherwise discussed the matters referenced herein with one or more of SCM’s trading desks, any of which may have accumulated or otherwise taken a position, long or short, in any of the financial instruments discussed in or related to this material. Further, SCM may act as a market maker or principal dealer and may have proprietary interests that differ or conflict with the recipient hereof, in connection with any financial instrument discussed in or related to this material.

This message, including any attachments or links contained herein, is subject to important disclaimers, conditions, and disclosures regarding Electronic Communications, which you can find at

Important Disclaimers

Copyright © 2023 Santander US Capital Markets LLC and its affiliates (“SCM”). All rights reserved. SCM is a member of FINRA and SIPC. This material is intended for limited distribution to institutions only and is not publicly available. Any unauthorized use or disclosure is prohibited.

In making this material available, SCM (i) is not providing any advice to the recipient, including, without limitation, any advice as to investment, legal, accounting, tax and financial matters, (ii) is not acting as an advisor or fiduciary in respect of the recipient, (iii) is not making any predictions or projections and (iv) intends that any recipient to which SCM has provided this material is an “institutional investor” (as defined under applicable law and regulation, including FINRA Rule 4512 and that this material will not be disseminated, in whole or part, to any third party by the recipient.

The author of this material is an economist, desk strategist or trader. In the preparation of this material, the author may have consulted or otherwise discussed the matters referenced herein with one or more of SCM’s trading desks, any of which may have accumulated or otherwise taken a position, long or short, in any of the financial instruments discussed in or related to this material. Further, SCM or any of its affiliates may act as a market maker or principal dealer and may have proprietary interests that differ or conflict with the recipient hereof, in connection with any financial instrument discussed in or related to this material.

This material (i) has been prepared for information purposes only and does not constitute a solicitation or an offer to buy or sell any securities, related investments or other financial instruments, (ii) is neither research, a “research report” as commonly understood under the securities laws and regulations promulgated thereunder nor the product of a research department, (iii) or parts thereof may have been obtained from various sources, the reliability of which has not been verified and cannot be guaranteed by SCM, (iv) should not be reproduced or disclosed to any other person, without SCM’s prior consent and (v) is not intended for distribution in any jurisdiction in which its distribution would be prohibited.

In connection with this material, SCM (i) makes no representation or warranties as to the appropriateness or reliance for use in any transaction or as to the permissibility or legality of any financial instrument in any jurisdiction, (ii) believes the information in this material to be reliable, has not independently verified such information and makes no representation, express or implied, with regard to the accuracy or completeness of such information, (iii) accepts no responsibility or liability as to any reliance placed, or investment decision made, on the basis of such information by the recipient and (iv) does not undertake, and disclaims any duty to undertake, to update or to revise the information contained in this material.

Unless otherwise stated, the views, opinions, forecasts, valuations, or estimates contained in this material are those solely of the author, as of the date of publication of this material, and are subject to change without notice. The recipient of this material should make an independent evaluation of this information and make such other investigations as the recipient considers necessary (including obtaining independent financial advice), before transacting in any financial market or instrument discussed in or related to this material.

The Library

Search Articles