It was supposed to be the Roaring Twenties, Part II. After a year of lockdown, consumers were going to trek into every store in town and spend like The Great Gatsby on his fifth gin rickey, leading to a new era of economic glory.
Or not. While many economists and companies forecasted consumers would turn spendthrift once pandemic restrictions lifted, new data shows Americans and Europeans are hoarding more than $2.7 trillion in cash banked during the crisis.
Craving for Saving
As recently as May, the Organisation for Economic Co-operation and Development said (in very boring technocratic language) that the “lifting of containment measures and the concomitant fall in households saving” would unleash a swell of pent up demand.
In other words: lockdown over, money saved, time to go shopping. The most recent data, however, shows nothing of the sort:
- The total excess savings banked since the Covid pandemic began is $2.3 trillion in the US and $464 billion in the eurozone, according to Bloomberg Economics. Savings barely declined in the August summer holiday season, suggesting people are simply holding onto their money.
- Meanwhile, consumer sentiment in the US unexpectedly dropped earlier this month to the second-lowest level it’s been since 2011, according to University of Michigan researchers, with consumers worried about high inflation costs and the general economy.
Hard Times Still: In a poll by Harvard University and NPR, 40% of Americans said they’ve had serious financial problems in recent months despite 67% receiving government aid. Somewhat ironically, the lack of a consumption surge could stop the risk of prolonged inflation that central banks fear because low demand would make it hard for businesses to jack up prices.
Gone for Good: One thing economists may not have anticipated: consumers simply don’t miss things they lost during the pandemic. A European Central Bank paper recently found 23% of French households didn’t miss going to the hair salon, and 21% of Germans didn’t miss eating out. Seems a generation really did learn how to make bread on Youtube.