In our May 2021 Client Briefing, Deconstructing U.S. Fiscal Stimulus, we observed that both the Trump and the Biden administrations have delivered more stimulus in two short years than the economy can absorb. Over that same time, consumers have built up a backlog of pent-up demand that could support many quarters of above-trend spending, which the influx of relief payments and accumulated market income will help finance.
Many consumers have received thousands of dollars in multiple direct payments. A family of four would have received $5,600 under the American Rescue Plan alone. These numbers rise when various tax credits and unemployment assistance are included.1 Thus, it is no surprise that Q2 personal saving was still about $600 billion higher than its pre-pandemic peak. (Chart 1)
Chart 1: Personal saving remains well above its previous peak
These funds were not tightly targeted to pandemic relief but represented general support for Americans, American families, and social equity. Benefits from the Child Credit and Earned Income Tax Credit, passed in the American Rescue Plan Act of 2021, will pay out largely in 2022.
To get a better sense of consumers' latent spending power as measured against their pandemic-induced pent-up demand, we compare recent personal income and consumer spending levels to their pre-pandemic trends. Consumer income—that is, all sources of income including pandemic relief payments—exceeds pre-pandemic trends by about $1.5 trillion over the past six quarters. Cumulative shortfalls in consumer spending over the same period total $1.1 trillion. (Chart 2) These dynamics together will support above-trend consumer spending through most of 2022.
Chart 2: Consumers have trillions in latent spending power
1 CARES Act distributed $1,200 per individual, $2,400 for a married couple filing tax returns jointly, plus $500 for each qualifying child. P.L. 116-260 Consolidated Appropriations Act distributed $600 per individual, $1,200 for married couples filing jointly, and $600 for each qualifying child. American Rescue Act distributed $1,400 for each adult and child in a family (a family of four would receive $5,600). Expanded Child Credits and the Earned Income Tax Credit add to these amounts.
Gail D. Fosler is president, The GailFosler Group, a strategic advisory service for global business leaders and public policymakers. She is former president and trustee of The Conference Board. Fosler served as president of The Conference Board from October 2007 to December 2009. From 1989-2008, she served as chief economist. In 2004, she assumed responsibility as executive vice president for expanding the international presence and operations of The Conference Board. Prior to coming to The Conference Board, Fosler served as Deputy Staff Director and Chief Economist of the U.S. Senate Budget Committee, where she helped develop frameworks and forecasts for congressional budget debates and negotiated on fiscal, monetary, and budget process initiatives for the committee. She is a member of The Council on Foreign Relations and the Bretton Woods Committee, and a former trustee and Executive Committee member of the National Bureau of Economic Research. She is an affiliated expert for the Information Technology and Innovation Foundation, and served as a member of the Bipartisan Policy Center's Commission on Retirement Security and Personal Savings. She has served on the Advisory Panel to the Federal Reserve Bank of New York, the Chatham House Gold Task Force and as a trustee of The Economic Club of New York. She chairs the Board of Directors of the Deschner Corporation, a family-owned manufacturer of hydraulic speed controls and related equipment for industry in Santa Ana, Calif. She is a past director of Shire plc, Baxalta Incorporated, Swiss Re America Holding Corp., Caterpillar Inc., Baxter International and DBS Holdings (Singapore), among others, and a past trustee of John Hancock Mutual Funds. She currently is a member of the board of OurBrainBank, a not-for-profit dedicated to improving treatments and outcomes for glioblastoma (GBM).
Frank Zuroski is an Economic Analyst for The GailFosler Group. He is a recent graduate of Hamilton College with a BA in Economics. He is an Omicron Delta Epsilon Member of the International Economics Honor Society. He has studied abroad at University of New South Wales in Australia, and has previously worked with UBS and Northwest Savings Bank.