Recent data reveals a significant increase in retail sales. However, despite this surge in spending, households are running out of the extra cash they had available for such purchases.
According to the San Francisco Fed, households held a mere $190 billion of aggregate excess savings by June, marking a substantial decrease from the approximately $500 billion they had in March. The regional central bank predicts that these excess savings will likely be depleted by the third quarter of 2023.
It is acknowledged that determining the exact amount of excess savings is a challenging task. One study suggests that these savings were already exhausted in the first quarter of 2023, while another indicates that households still retain a considerable amount of excess savings.
The San Francisco Fed admits that estimating aggregate excess savings is fraught with uncertainty due to the high sensitivity of the results to the methodology used and assumptions made about pre-pandemic trends.
Economists were taken by surprise when retail sales experienced a robust 0.7% increase in July. Additionally, following the release of the latest industrial production figures, the Atlanta Fed’s GDPNow model projects scorching growth at a seasonally adjusted annual rate of 5.8% in the third quarter.
On Wednesday, the yield on the 10-year Treasury (BX:TMUBMUSD10Y) reached its highest level since 2008.