The pandemic-related financial support to U.S. For simplicity, the two recessions in the early 1980s are combined. Note: Growth in inflation-adjusted nondefense discretionary government spending over the first two years following the onset of a recession as defined by the NBER, relative to the two fiscal years preceding it. The growth in fiscal spending during the pandemic period, in nominal and real terms, was far beyond growth associated with other post-1970 recessions.įiscal spending growth following onset of recessions By contrast, nondiscretionary spending refers to government benefits such as Social Security and Medicare. Discretionary spending includes all financial obligations by the federal government that are authorized by congressional budgetary or spending acts, including fiscal stimulus packages that are introduced in response to economic downturns. We measure this as growth in real nondefense discretionary fiscal outlays over a period of two years, starting in the fiscal year in which each recession began according to the National Bureau of Economic Research (NBER), relative to the two years preceding the recession onset. economy at a time when many people had seen their household incomes dwindle (Bureau of Labor Statistics 2023 Congressional Budget Office 2020, 2021).įigure 1 shows the sizable fiscal action in the pandemic relative to other recessions. Between 20, the federal government launched several stimulus packages that injected about $5 trillion into the U.S. The fiscal response to the onset of the pandemic was swift and significant. Fiscal spending and excess savings following recessions This outlook is uncertain depending on, for example, whether households have developed a preference for higher savings, significantly shifted their spending patterns, or substituted other sources of income for the expired pandemic-era cash inflows. We expect that these excess savings could continue to support consumer spending at least into the fourth quarter of 2023. The distribution and allocation of excess savings and wealth across the income distribution suggest that households on average, including those at the lower end of the distribution, continue to have considerably more liquid funds at their disposal compared with the pre-pandemic period. Moreover, despite a rapid drawdown of savings in recent months, there is still a large stock of aggregate excess savings in the economy-some $500 billion. We show that households rapidly accumulated unprecedented levels of excess savings-defined as the difference between actual savings and the pre-recession trend-relative to previous recessions. In this Economic Letter, we examine how household saving patterns since the onset of the pandemic recession compare with previous recessions. As a result, aggregate personal savings rose rapidly, far beyond its pre-pandemic trend and much higher than in previous recessions. economy at a time when health-related economic closures and social distancing led to a significant drop in household spending. Pandemic-related fiscal support resulted in a sizable increase in disposable income in the overall U.S. Estimates suggest that those funds could be available to support personal spending at least into the fourth quarter of 2023. Since 2020, households across all income levels have held a historically large share of savings in cash or other easily accessible forms. Despite recent rapid drawdowns of those funds, estimates suggest a substantial stock of excess savings remains in the aggregate economy. households built up savings at unprecedented rates following the strong fiscal response and lower consumer spending related to the pandemic.
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