As depicted in the supplied chart, a unique feature of the current economic cycle is the impact of excess savings accumulated during the COVID pandemic. In the US, a staggering $2.1 trillion in excess savings was accumulated by consumers during the pandemic as they couldn’t spend on

dining, travel or entertainment. As you can see from the chart (shown in green), these were additional savings above the long-term trend. What I find extremely interesting is the trend which has developed since restrictions were lifted post COVID (shown in red). As you can see, the massive increase in the savings rate observed during the pandemic completely reversed post pandemic. Furthermore, the $2.1 trillion of excess accumulated savings has been almost fully spent. Excess savings accumulated during the pandemic created additional spending capacity which helped insulate consumers from the impact of inflation. Stated another way, as inflation has increased the cost of almost everything, consumers chose to spend savings to maintain their standard of living rather than reduce spending. This is logical behavior given spending excess savings is less painful than deciding not to dine out or go on vacation. The question is what happens to consumer spending now that excess savings have been depleted? Does the substantial increase in mortgage costs, utility costs, food costs, etc. mean the average consumer is running out of money to spend on vacations, restaurants, and other discretionary items? Time will tell, however, it seems logical that spending will be increasingly challenged as consumers have exhausted excess savings and the increase in the basic cost of living takes a larger percentage of their take-home pay. Finally, it’s important to remember that the US remains a consumer driven economy, any weakness in consumer spending will quickly be reflected in the largest economy in the world.