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Americans saved a lot of money this year dispite record inflation

MARY LOUISE KELLY, HOST:

Finances are tight in a lot of American households this holiday season, two years into a pandemic that has brought with it tremendous uncertainty.

LUZ MARIA RODRIGUEZ: It's been a struggle.

ARI SHAPIRO, HOST:

That's Luz Maria Rodriguez. She's 67, and lives in Houston. Last summer, after her brother died of a stroke, she had to find a new apartment. The move and some car repairs really depleted her savings.

RODRIGUEZ: Utilities, fuel for your vehicles, repairs for your vehicles - it's like Murphy's Law. It's like a domino effect, if you will. So it's like we had to really watch what we spend and how much we spend, especially the utilities because, well, everything pretty much has gone up - everything, all the prices.

KELLY: Those prices Rodriguez is seeing go up? That is inflation, and inflation rates right now are the highest they have been in almost four decades. Here's Tim Quinlan, senior economist at Wells Fargo.

TIM QUINLIN: This is, without hyperbole, the fastest rate of inflation coming into the holiday season in a generation. And that eventually could start to compete with wallet share and consumers' ability to spend.

SHAPIRO: Still, even with all that inflation, holiday sales have been strong.

(SOUNDBITE OF MONTAGE)

UNIDENTIFIED REPORTER #1: Black Friday, one of the largest shopping days of the year.

UNIDENTIFIED REPORTER #2: A lot of people have money, and they're spending it.

UNIDENTIFIED PERSON: I am here for the PS5.

UNIDENTIFIED REPORTER #2: When I take a look at sales this year, they were up 22% in October.

UNIDENTIFIED REPORTER #3: Shoppers are estimated to spend between $834 billion to $859 billion.

KELLY: Mahir Rasheed of Oxford Economics explains those spending numbers this way.

MAHIR RASHEED: It's mostly coming from upper-income households, who we've seen during the pandemic have accumulated a pretty large mountain of excess savings. And we're now seeing them gradually unwind this pile.

SHAPIRO: That mountain of excess savings is significant in some households, says Mark Zandi of Moody's Analytics.

MARK ZANDI: There's no comparison. This is off-the-charts kind of saving. I mean, if you total it all up since the pandemic hit a couple of years ago - almost a couple of years ago - Americans have saved an additional $2.7 trillion - $2.7 trillion. That's a lot of money. Just for context, that's 11% - 12% of the nation's GDP. That's the value of all the things that we produce. So there's nothing that comes close.

KELLY: We wanted to better understand how we got to this point - off-the-charts saving in American households during a global pandemic. So our co-host, Ailsa Chang, put her questions to Mark Zandi.

AILSA CHANG, HOST:

Over the course of this pandemic, over the course of the last almost couple of years, did you see a trend in how people were saving?

ZANDI: Well, it was throughout. You know, of course, you saw big spikes when government support went out. So, you know, we had the American Rescue Plan. We had the CARES Act. We had a number of different pieces of legislation - relief legislation - that provided direct support to households. So you remember the stimulus checks - there was three rounds of those - unemployment insurance, food assistance, rental assistance. So when that money went out, you know, of course, people couldn't spend it right away. You know, they took some time, so that got into saving. And we saw big spikes then. But in general, you know, throughout the entire pandemic - until very, very recently, people had been saving more than they were saving prior to the pandemic.

CHANG: Well, what about the psychology behind this saving? Like, what do you think all of this saving tells us overall about how people are feeling right now? Is over-saving as a symptom of fear or uncertainty?

ZANDI: I think that's a minor part of it. I mean, I'm sure it's a part of it, particularly for lower- and middle-income households who don't have a cash cushion. You know, this is what economists call precautionary saving, you know, saving for a rainy day. And, of course, you know, it's been raining pretty hard here for two years, so it'd be completely understandable to, you know, want to save for that. But the bulk of the saving is actually done for folks in the top part of the income distribution, particularly very high-income households. So those folks - that's them not able to spend. You know, they can't spend. I mean, you can't travel. You can't go to restaurants. You can't go to ballgames. You can't go to the movies or concerts. So, you know, you might spend a little bit more on stuff. So we've been buying a lot of, you know - I mean, stuff on my back deck - I've been on my back deck spending, you know, buying deck chairs and everything else because I've been working out there. But, you know, there's only so much of that you can do, and the rest of it, you save. So a lot of it is simply that. And I think for many of those households, those high-income households, they consider that, like, wealth. You know, it's part of their nest egg. In fact, that may be the other thing that's going on. A lot of Baby Boomers, folks my age in their 50s and 60s, you know, are now retiring because of the pandemic, you know, pulled for their retirement. And they felt like they could because of the extra savings they've been able to do in the last couple of years that's built up their retirement nest egg and allowed them to retire.

CHANG: I'm curious what you've been seeing during this holiday season. Like, are people actually spending money? Are you seeing some of these savings go slightly down recently?

ZANDI: Yeah, they are spending. So the savings rate in the month of October finally fell below the saving rate that it was prior to the pandemic. And, you know, we don't have the data for November, but I'm pretty sure - because November was really strong for holiday sales - that we're going to see another decline. So people are now spending down that excess, particularly lower- and middle-income households. So I think that's part of the fuel behind these boom-like holiday sales that we've been seeing. In fact, you know, if you look at the data so far - we won't know completely how sales for the holiday season went for another few weeks, but looking at what we know, it's a boom time - Christmas holiday season - for shopping. It's slowed down a little bit, you know, in the last couple of weeks because of, I think, omicron that's starting to crimp things. Yeah. But, you know, abstracting from that, I mean, it was a great holiday season. And one of the reasons, I think, is because of all this excess saving that people had, and they can spend it.

CHANG: And if we do see excess savings start to build again, I mean, what does that do to the overall health of the economy? Can all of this saving be bad? What happens if people aren't going to be spending as much as they used to indefinitely?

ZANDI: Well, first of all, we don't have that problem, Ailsa. I mean, we're saving, and we are spending. So the - if you look at overall consumer spending, everything we buy stuff on - you know, everything from travel to cars to restaurants to whatever, you name it - the level of spending today is about where you would have expected it had there not been a pandemic. And, you know, you have to give credit - a lot of the credit to the government support, you know, all of the support since the pandemic hit that really helped, you know, American consumers, you know, stay in the game, continue to spend and kept this economy together as well as it could possibly have been kept together.

CHANG: Well, what will you be looking for in the new year? Like, do you expect that people will continue to stash their money away in savings at roughly the same rate that we've been seeing this past year? Or do you think that savings might end up going down?

ZANDI: It's going to go down, I think, because, you know, I don't think we're going to get much more from Washington. I don't think we're going get a lot more government support here. I mean, we're debating Build Back Better, but that doesn't really affect the economy until well into next year and, you know, thereafter. And unless omicron goes, you know, really sideways here, it's hard to see Washington coming up with another relief package. So if that doesn't happen, which seems likely, then I do think particularly lower- and middle-income households are going to use that - they're going to have to use that saving to kind of navigate through here, you know, make their rent payment and their mobile phone payment, that kind of thing. So I would expect saving to come in. And, you know, the excess savings that exist for folks in the bottom 60%, maybe even 80% of the income distribution, that probably will all be gone, I think, sometime in the - by the summer or fall of 2022, if everything kind of roughly sticks to script. So a lot of that excess saving is going to be used now to support the economy, you know, going forward here as we move through 2022.

CHANG: Mark Zandi is the chief economist at Moody's Analytics.

Thanks so much for speaking with us again.

ZANDI: Yeah, my pleasure. Thanks for having me.

(SOUNDBITE OF SPOON'S "INSIDE OUT") Transcript provided by NPR, Copyright NPR.