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Are Consumers Running Out of Money?

COVID-19 stimulus rivaled the New Deal’s, creating record amounts of excess savings. But these savings are shrinking thanks to unchecked spending, inflation and high interest rates. What does this mean for markets?

By  Mike Rode, CFA
Open wallet with U.S. currency inside.

Key Takeaways

Government stimulus programs and changes in spending habits helped U.S. consumers pile up substantial excess savings during the pandemic.

Consumers’ cash stockpiles, however, have dwindled considerably and are expected to continue doing so through 2024.

Current spending patterns appear unsustainable and could negatively affect consumer-oriented stocks.

The COVID-19 pandemic triggered a blizzard of once-in-a-lifetime circumstances. For the U.S. economy, the state of the consumer changed faster and more profoundly than at any point in U.S. history — including the Great Depression.

As stores, restaurants and other businesses closed and travel stopped, consumers spent less money. Meanwhile, emergency government programs aimed at preventing financial calamities flooded consumers and businesses with extra cash.

According to the Tax Foundation, these stimulus programs amounted to nearly 30% of gross domestic product (GDP). That level is comparable only to those initiatives during the Great Depression’s New Deal which amounted to 40% of GDP.1

The combination of consumers stashing government checks into their savings accounts and delaying discretionary spending resulted in nearly $2.5 trillion worth of so-called “excess savings” in 2021, according to Moody’s Analytics.

Shortly after that peak of excess savings, cash-flush consumers embarked on “revenge spending” sprees as social distancing faded away and public health restrictions began to lift. See Figure 1. By 2022, excess savings had fallen to $1.5 trillion.

Figure 1 | U.S. Retail Sales Continue to Rise

U.S. Retail Sales Continue to Rise. Pandemic shutdown thwarts retail sales in 2020. Retail sales boom as consumers embark on revenge spending in mid-2021.

Data from 1/31/1995 – 2/28/2023. Source: Wolfe Research.

Consumers Are Spending Too Much and Saving Too Little

Consumers have also benefited from 23 states increasing their minimum wages from 5% to 12% at the beginning of this year.2 Overall wages continue to push higher — up 7.9% in January compared to a year ago — as employers struggle to hire to pre-pandemic levels.3 In addition, 21% of Americans benefited from a cost-of-living adjustment to Social Security payments.4

This unsustainable level of discretionary spending, coupled with high inflation and rising interest rates, has placed consumers in a much different place than three years ago. We think the bottom 40% of income earners — those making $50,000 or less yearly — may start running out of savings by mid-summer 2023. See Figure 2.

According to the U.S. Bureau of Economic Analysis, these consumers make up 20% of U.S. spending compared to the top 20% of earners, who account for 40%.

For now, higher-end consumers are still flush and continue to spend. But inflation, higher borrowing rates, white-collar layoffs, declining home prices and a shaky stock market could cause them to cut back spending at any moment.

This shifting landscape has considerable implications for retail and service companies dependent on consumer discretionary spending and those investing in consumer stocks.

Figure 2 | Some Income Earners May Start to Deplete Savings This Year

Some Income Earners May Start to Deplete Savings This Year.

Data as of 2/28/2023. Data for 2023 and 2024 is estimated. Source: U.S. Bureau of Economic Analysis, Rubinson Research estimates. Normal uses each cohort's average savings level for 2015-2019. We grow savings by 5% annually for cohorts with positive savings rates. For cohorts with negative savings rates, we hold the level steady to not compound a negative.

Market Implications: Cautious Outlook for Retailers

Rapidly vanishing excess savings and consumers’ continuing overspending will significantly affect the market. Investors may want to take a cue from retailers serving broad segments of the U.S. economy.

Most big-name retailers expressed conservative forecasts for 2023. Walmart, for instance, reported weakness across many of its merchandise lines. The company predicted sales at its stores open a year or longer would increase just 2% to 2.5% this year after rising 5% to 10% for the last nine quarters.

Likewise, Home Depot expects same-store sales to remain flat in 2023.5 Given current inflation levels, this forecast implies an expected 5% to 10% decline in sales volume and transactions. Target, Macy’s and Best Buy also report decreasing demand.

Even though unsustainable consumer spending may not bode well for certain consumer discretionary stocks, opportunities still exist in this sector. For instance, discount retailers geared toward price-conscious consumers may attract buyers trading down from more expensive stores. If middle-income consumers’ savings run out, they may turn to Dollar Tree to save money.

The tide has turned from a pandemic-ridden economy featuring abundant consumer savings, weak consumer spending and low inflation. The script, as they say, has entirely flipped.

Amid shrinking savings, our investment teams are listening closely to what retailers and consumer product makers say about sales trends and other fundamental measures in the months ahead.

With all that in mind, we believe consumer discretionary stocks are overvalued. Even with wage growth, we think it’s a weakening environment for the consumer.

We are underweight in consumer discretionary stocks like motorcycles, home appliances, hotels and restaurants. Dollar Tree is an exception, particularly since it has started selling items for more than $1. Some products on shelves go for $3 or $5, which should help margins.

For now, we favor consumer staples. That’s companies, for example, which sell food, toothpaste, diapers and prescription drugs — things people need when times are tough and savings are slim.

Mike Rode, CFA
Mike Rode, CFA

Vice President

Senior Investment Director

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Bill Dupor, “The Recovery Act of 2009 vs. FDR’s New Deal: Which Was Bigger?” Regional Economist, Federal Reserve Bank of St. Louis, February 9, 2017.


Home Depot, “The Home Depot Announces Fourth Quarter and Fiscal 2022 Results,” News Release, February 21, 2023.

References to specific securities are for illustrative purposes only and are not intended as recommendations to purchase or sell securities. Opinions and estimates offered constitute our judgment and, along with other portfolio data, are subject to change without notice.

The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments' portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.

Investment return and principal value of security investments will fluctuate. The value at the time of redemption may be more or less than the original cost. Past performance is no guarantee of future results.