Why American Households Are Maintaining Consumption Despite Inflation: Insights from Allianz and Economist Christophe Blot

Against all expectations, despite high inflation in the United States (5 % a March) household consumption was the engine of US growth. American households have indeed drawn heavily on their over-savings, accumulated during the Covid years, to maintain their standard of living and their consumption.

In a recent note, the insurer Allianz compared, on this point, the United States to five European countries: France, Germany, Italy, Spain and the United Kingdom. Unsurprisingly, on both sides of the Atlantic, households saved more in 2020 and 2021. But since then, consumption and savings trajectories have diverged. Thus, in the United States, the recovery in consumption was strong, while European households continued to save at a high level.

How can this American specificity be explained? In a blog post published on the website of the French Observatory of Economic Conditions, the economist Christophe Blot has analyzed the first publication of the American accounts of 2023. American households saved significantly more in 2020 and 2021, compared to 2019, thanks to social benefits and a drop in consumption, partly prevented by the confinements and restrictions.

The savings rate reached 16.8% in 2020 and 11.9% in 2021, compared to 8.8% in 2019. The stock of over-savings, compared with the average for 2019, had thus exceeded 2 100 billion dollars, at third quarter of 2021.

“From 2022, households will begin to use this over-saving insofar as the household savings rate is lower [3,7 %] than the benchmark of 2019”, explains Christophe Blot. This Covid oversaving could be exhausted during the second half of 2023, according to the researcher’s estimates, which join those of the insurer Allianz.

“In my hypothesis, even if the over-savings are concentrated among the households with the highest incomes, everyone will continue to draw from it between now and the end of the year, and therefore the standard of living is maintained. But potentially, the unequal distribution limits the possibility of maintaining purchasing power among the most precarious households. », comments Christophe Blot.

Unequal distribution

If they risk coming to the end of this stock of savings accumulated during the pandemic, the Americans nevertheless continue to put money aside. Their average savings rate over the whole of 2023 should indeed reach 4.1%. Concretely, this means that Americans do not consume more than their income. « But there is heterogeneity depending on the level of income. »nuance Christophe Blot.

If we still lack precise data on the distribution of savings, the latter is a priori changing, which will have an impact on the trajectory of consumption and growth in the coming months in the United States. .

« Transfers have certainly been more oriented towards the middle classes, but the liquidities that exist today could be more concentrated on the wealthiest classes. »sums up the economist.

We can indeed assume that the less wealthy have already exhausted their reserve of savings accumulated during the pandemic. The problem is that wealthy households have a lower propensity to consume, that is to say that they generally save more in proportion to their income, and are therefore more likely to accumulate this saving than ending up consuming it.

Allianz experts make the same observation for the countries of the Old Continent and, for this reason, do not anticipate a rebound in consumption this year on this side of the Atlantic. In the UK, for example, the bottom quintile (the wealthiest 20% of the population) is said to have amassed £250 billion in excess savings, compared to £1.5 billion for the top quintile.