Pandemic Savings and Spending

By Aila and Mr. WEquil

During the Pandemic of 2020, consumer spending dropped about 4% compared to the prior year. That was the largest drop in history going back to WWII. The cause was driven by lockdown that forced consumers to cut back on many of the spending habits they were accustomed to.

Spending switched from service sector consumption like going to restaurants and increased in areas like buying computers and cars to that helped us live our lives while social distancing. This caused the price of durable goods to rise 25% of pre-pandemic levels by early 2021. In contrast, prices of services fall by 20% during the initial lockdowns and were still recovering back to pre-pandemic levels at the start of this year.

The shock of the Pandemic on personal savings was unprecedented. Savings as a percent of income over the past decade averaged about 7%. Then in 2020 the savings rate went on a wild ride jumping to as high as 26% in the second quarter. Over the whole of 2020 the savings rate averaged 16.30% which is more than twice the average 7% over the prior decade (see References).


Average Personal Savings Rate During 2020 Calculation

Aila performed the calculation of the average using data sourced from FRED because the annual figure was not available. I found the average by adding up these four numbers below and than dividing it by four

Q1 = 9.7 %

Q2 = 26%

Q3 = 16%

Q4 = 13.5%