The pandemic and the following fiscal stimulus helped drive unprecedented excess savings in the U.S. But recent data shows the windfall may run out as soon as next month.

According to a study from the San Francisco Fed (SF Fed), only under 10% of the accumulated $2.1 trillion in savings—roughly $190 billion—remained by June.

"Our updated estimates suggest that households held less than $190 billion of aggregate excess savings by June," wrote Hamza Abdelrahman, senior economic analyst at the SF Fed.

She added, "There is considerable uncertainty in the outlook, but we estimate that these excess savings are likely to be depleted during the third quarter of 2023."

Savings: conventional vs. excess

Conventional savings are what people typically envision when they think of the word. This is the income that’s kept aside after covering necessary expenses.

These savings are normally used for large future expenditures, like funding retirement, paying for emergencies, or purchasing a new car.

The term excess savings, on the other hand, has become more prominent since the beginning of the pandemic. It’s often used in the context of unusual events or economic downturns.

Excess savings is the additional money that households accrue during these periods. It’s savings above and beyond conventional levels.

For example, lockdowns during the pandemic prompted reduced spending on transportation. The money saved from fewer commutes to work is considered excess.

Peak to trough

Excess savings peaked at $2.1 trillion in August 2021 and have been depleting since.

While the drawdown started slowly, it accelerated in 2022, falling roughly $100 billion per month. Since then, aggregate personal savings have hovered about $50 billion below the pre-pandemic trend.

Chart of pandemic savings

The Fed now anticipates that excess savings will be completely depleted before the end of the current quarter.

During previous recessions since the 1970s, aggregate excess savings gradually increased. During the pandemic, however, savings rapidly exploded before falling precipitously—a unique phenomenon not witnessed in the past half-century.

The numbers from the San Francisco Fed come with a caveat.

They readily admit aggregate excess savings figures are prone to uncertainty and “are highly sensitive to the methodology used and the assumptions made about the pre-pandemic trend.”

In other words, estimates of savings being depleted before the end of the third quarter are rough at best.

In another study conducted in June by de Soyres, Moore, and Ortiz, the authors used personal savings rates as opposed to individual savings levels. They concluded that excess savings were, in fact, depleted in Q1 of 2023.

Conversely, Briggs and Pierdomenico estimate that U.S. households maintain substantial excess savings. They also predict these savings won’t be a significant source of spending growth in the near future.

Regardless of the study, the overwhelming conclusion is Americans experienced a rapid increase in excess savings followed by an aggressive drawdown.

The only question is at what pace the drawdown occurred.