Spurred by a Friday note published by Fed staffers examining how people’s Scrooge McDuck piles have changed over the course of the pandemic . . .
. . . Deutsche Bank’s Robin Winkler has done some compelling broader crunching on excess savings built up during the pandemic, with bad news for one Scandinavian country.
This stuff matters, macroeconomically. The “dry powder” dynamic of consumer-led post-lockdown growth is a particularly important part of the “where’s the bloody recession” dynamic playing out in the US. As the Fed’s Francois de Soyres, Dylan Moore and Julio Ortiz put it:
As households built up an unprecedented stock of savings, an important question going forward revolves around the usage of this stock, and to what extent “excess savings” will continue to fuel spending in the quarters to come. In a context of persistently high core inflation and continued supply-demand imbalances in many countries, it is especially important to assess the pace at which households might be expected to spend their excess savings and continue to maintain a high level of aggregate demand.
As the chart above indicates, the US looks shit outta powder — or “currently completely depleted”, as the staffers put it. They add: “Given the more rapid drawdown of excess savings, aggregate demand in the United States is likely to have been supported more than in other countries over the past year.”
In contrast, all the other advanced economies tracked hold savings equivalent to 3 to 5 per cent of GDP — which “should last until about the end of the year”.
Winkler’s expanded on this analysis, noting the Fed’s small sample size, by expanding the sample and utilising an alternative methodology proposed by the Fed. His conclusions, interestingly, are similar but different: greater divergence and substantially larger cash buffer for HODLer heroes Canada and the UK. He writes:
The UK and Canada probably had at least 10% of GDP worth of excess savings left; Australia and the Eurozone probably had at least 5% of GDP left. In general, these numbers are consistent with the robust demand picture so far this year, and especially with the surprising growth dynamic in Canada and the UK.
The standout, however, is Sweden: which never fully locked down, so missed out on this dynamic entirely:
Winkler says there are two conclusions from this:
First, the divergence in excess savings in the last year or so is consistent with our medium-term view of the US economy slowing most rapidly in H2 and the Fed being closer to easing policy than most other central banks in G10. Second, while the UK and the Eurozone could hold out a little longer thanks also to excess savings, the lack of excess savings supports our view that Sweden faces even stronger headwinds.
The outcome of all this is that consumer-led growth slowdowns are likely to be desynchronised, and that there’s more fuel left for the inflationary fire. As the Fed staffers write:
As [advanced foreign economies] are expected to continue to use their accumulated stock of excess savings to fuel consumption in the quarters to come, the resulting strength in aggregate demand could continue to be a source of price pressures.
They conclude (our emphasis):
Absent any further shocks to disposable income or savings behavior, our analysis suggests that the accumulated average AFE excess savings should be unwound by the end of the year.
That’s a pretty big caveat: taking an international view is all very well, other than the problem that it ignores every possible idiosyncrasy about who has been saving. Cash piles aren’t a great shield if their owners are so wealthy that they don’t need to run them down.
Overall, it’s frustratingly hard to predict what this means for the big economic picture. As US recessionary timings leave financial professionals stumped . . .
. . . the apparent desynchronised rundown of these savings is simply another complication.
Definitely bad news for Sweden though.
Source: Economy - ft.com
