Show an ad over header. AMP

The hoarding economy: Big businesses and the wealthy lean further into saving

Americans are locking away greater shares of their money — especially big businesses and the wealthy — a trend that has increased thanks to the coronavirus pandemic and is likely to stick around for some time.

Why it matters: The U.S. economy is built on our propensity to spend and the past decade's environment of stubbornly low interest rates, low growth and economic inequality all could be exacerbated in the future as the country leans further into the savings trend.


What's happening: Thanks to the pandemic, the tendency of the wealthy socking away their money appears to be getting worse.

  • A recent survey from Pew Research found that Americans have cut back on spending, especially at upper-income levels, over the past year.
  • 32% of "upper income" adults said they were saving more since the pandemic began, compared to 23% of all respondents and 17% of "lower income" adults.

Where it stands: Data from Albion Financial Group show Americans have now socked away around $1.5 trillion in excess savings.

  • "The savings rate is probably at a fairly high plateau — I don't know if it's a permanent plateau, but it's one that will stick around for longer than just the next 12 months or 18 months," Jason Ware, partner, chief economist and CIO of Albion Financial, told me on the latest edition of the "Market Banter" podcast.
  • "We saw this in the years after [the Great Recession]; human behavior is difficult to change."

Why you'll hear about this again: A similar study from Oxford Economics and Barclays found $1.8 trillion in excess savings over the last 11 months, and Gregory Daco, chief U.S. economist at Oxford Economics, estimates the number could rise to $2.5 trillion by this summer.

  • "I’d expect the savings rate to surge in March and stay quite elevated in April given the economic impact of payments and other transfers" from the $1.9 trillion American Rescue Plan, Daco told me in an email.

This hoarding also is happening at large companies, which have feasted on cheap debt since the Fed announced QE4ever in late March, and kept much of it in cash reserves.

  • Cash holdings for S&P 500 companies rose to a record $1.9 trillion, while cash and investments held by U.S. nonfinancial companies rated by S&P Global rose 30% to a record $2.5 trillion in the first half of 2020.
  • The cash ratio, which compares companies' cash against current liabilities, was 34.3% in Q3, up 15 percentage points from the third quarter of 2019, S&P Global noted in a December report.
  • For junk-rated companies, cash ratios have more than doubled in a year, to 50.1% in the third quarter of 2020 from 24.2% in the third quarter of 2019.
Data: U.S. Bureau of Economic Analysis; Chart: Axios Visuals

The U.S. savings rate is growing, but largely as a result of savings by the wealthy, the continuation of a long-running theme.

  • A paper published last month in the National Bureau of Economic Research called "The Saving Glut of the Rich" found that the wealthiest Americans have increasingly hoarded their money over the past 40 years, while investment has decreased and governments along with middle- and working-class people have had to increase their debt loads.

"Nine minutes and 29 seconds": Prosecutors begin closing arguments in Chauvin trial

Steve Schleicher, an attorney for the prosecution in Derek Chauvin's trial, began closing arguments on Monday by describing in detail George Floyd's last moments — crying out for help and surrounded by strangers, as Chauvin pressed his knee into Floyd for nine minutes and 29 seconds.

Why it matters: The jury's verdict in Chauvin's murder trial, seen by advocates as one of the most crucial civil rights cases in decades, will reverberate across the country and have major implications in the fight for racial justice.

Keep reading... Show less

European soccer goes to war over wealthy clubs' plans for exclusive "Super League"

Europe's biggest soccer clubs have established The Super League, a new midweek tournament that would compete with — and threaten the very existence of — the Champions League.

Why it matters: This new league, set to start in 2023, "would bring about the most significant restructuring of elite European soccer since the 1950s, and could herald the largest transfer of wealth to a small set of teams in modern sports history," writes NYT's Tariq Panja.

Keep reading... Show less

81% of S&P 500 companies have reported a positive earnings surprise for Q1

First-quarter earnings so far have been very strong, outpacing even the rosy expectations from Wall Street and that's a trend that's expected to continue for all of 2021. S&P 500 companies are on pace for one of the best quarters of positive earnings surprises on record, according to FactSet.

Why it matters: The results show that not only has the earnings recession ended for U.S. companies, but firms are performing better than expected and the economy may be justifying all the hype.

Keep reading... Show less

NASA's Mars helicopter takes flight as first aircraft piloted on another planet

NASA successfully piloted the Ingenuity Mars helicopter for its first experimental flight on Monday, briefly hopping the aircraft as NASA's Perseverance rover collected data.

Why it matters: Ingenuity's short flight marks the first time a human-built aircraft has flown on a world other than Earth, opening the door to new means of exploring planets far from our own.

Keep reading... Show less

All U.S. adults now eligible for COVID-19 vaccine, meeting Biden's April 19 deadline

All 50 U.S. states, plus Washington, D.C. and Puerto Rico, have now made U.S. adults over the age of 16 eligible for COVID-19 vaccines, meeting President Biden's April 19 deadline.

Why it matters: The landmark speaks to the increased pace of the national vaccination campaign, but will increase pressure on the federal government, states and pharmaceutical companies to provide adequate vaccine supply and logistics.

Keep reading... Show less

Minneapolis braces for a verdict in the Derek Chauvin trial

Minneapolis is waking up to images of an occupied city on Monday, as the city and the world await a verdict in the Derek Chauvin trial.

What it's like: Residents running errands, picking up dinner and heading to the dog park in recent days encountered heavily-armed National Guard troops stationed throughout the city.

Keep reading... Show less

Russian authorities say jailed opposition leader Navalny has been transferred to hospital

Russian opposition leader Alexei Navalny has been hospitalized, one day after his doctor warned that the jailed Putin critic "could die at any moment," Russia's prison service said Monday.

Why it matters: News that Navalny's condition had severely deteriorated on the third week of a hunger strike prompted outrage from his supporters and international demands for Russia to provide him with immediate medical treatment.

Keep reading... Show less

The state worst hit by the pandemic

Data: Hamilton Place Strategies; Chart: Will Chase/Axios

When the coronavirus pandemic hit, the job facing governments was to save lives and save jobs. Very few states did well on both measures, while New York, almost uniquely, did particularly badly on both.

Why it matters: The jury is still out on whether there was a trade-off between the dual imperatives; a new analysis from Hamilton Place Strategies shows no clear correlation between the two.

Keep reading... Show less

Insights

mail-copy

Get Goodhumans in your inbox

Most Read

More Stories