Broker Check
State of the Consumer

State of the Consumer

December 23, 2020

  • Over $1 trillion in excess savings
  • Compensation has rebounded sharply
  • Refinancing reduces debt burden

The pandemic induced recession has broken the mold of a typical economic slowdown. One area that looks very different is the state of the consumer. This covers a broad range of measures such as savings, wages, and debt. While many are still struggling, in aggregate the picture for consumers looks quite promising.


If we begin with savings, we focus on two measurements, Personal Savings, and Total Checkable Deposits. We would expect savings to rise in a recession as households postpone spending during uncertainty. However, the increase in savings in the current slowdown is multiples higher than in past recessions. Personal Savings is 101% higher than a year ago, while Total Checkable Deposits are 89% higher than last November. This equates to over $1 trillion in excess savings above the long-term trend that is likely to be spent once activity returns to normal.

(Data as of 12/17/2020)


Next, we turn to wages and compensation. Here we analyze two measures, Disposable Personal Income and Compensation of Employees. Disposable Personal Income includes stimulus payments and shows a spike during recessions due to fiscal policy support. Once again, the percentage increase is much higher than the previous two recessions. Compensation of Employees reflects those wages paid by employers. Wages typically fall in a recession and take a while to recover due to slack in the labor force. In the current environment, Compensation has been showing year-over-year growth since July and continues to trend higher. October showed an increase of 2.1% over a year ago, this equates to about $200 billion. This suggests that, despite job losses from the COVID pandemic, wages have generally continued to trend higher.

(Data as of 12/17/2020)


The third component to examine is debt. Consumers use debt in a variety of ways, so it is helpful to review an assortment of measures. Consumer loans, which include credit cards, are used to help fund short and intermediate needs. The total amount of consumer loans outstanding has fallen over 10%, more than $90 billion. Consumers’ primary long-term debt is their mortgage. We have seen a surge in refinancing due to record low mortgage rates. The Mortgage Banker Association is forecasting that mortgages totaling $1.75 trillion could be refinanced in 2020. Refinancing from 4% to 3% on a 30-year fixed-rate mortgage with a $300,000 balance will lower the monthly payment by more than $150. While the total amount of debt a consumer carries is important, the ability to service the debt has a more immediate impact on behavior. Reducing debt levels and refinancing have improved household’s ability to service their debt. Debt service payments as a percentage of income are at an all-time low which means consumers have more spending power.

(Data as of 12/17/2020)

Overall, we see a strong picture for consumers. Savings, wages, and debt all point to a consumer who can withstand the current recession. We believe consumers are in a strong position to accelerate spending once the vaccine has been distributed and have begun to position our portfolios to participate in this theme.

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Disclosure: All information is believed to be accurate but has not been independently verified and The Pacific Financial Group, Inc., a registered investment adviser, makes no warranties as to the accuracy of the information or any representations made or implied. The information should not be construed or interpreted as an offer or solicitation to purchase or sell a financial instrument or service. The information is for informational purposes only and should not be relied on or deemed the provision of tax, legal, accounting or investment advice. Past performance is not a guarantee future results. All investments contain risks to include the total loss of invested principal. Diversification does not protect against the risk of loss.