Drivers of Post-COVID Private Consumption in the U.S

Private consumption in the U.S. has recovered swiftly from the pandemic trough and has been running above the pre-pandemic trend even as interest rates rose sharply. This paper examines the underlying drivers for this strong growth in consumption. Using both state- and household-level data, we find...

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Bibliographic Details
Published in:Policy File 2024
Main Authors: Dao, Mai, La-Bhus, Fah Jirasavetakul, Zhou, Jing
Format: Report
Language:English
Subjects:
Consumption
COVID-19
Finance
International
Pandemics
Online Access:Request full text
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Summary:Private consumption in the U.S. has recovered swiftly from the pandemic trough and has been running above the pre-pandemic trend even as interest rates rose sharply. This paper examines the underlying drivers for this strong growth in consumption. Using both state- and household-level data, we find that excess savings from the pandemic, large increases in household wealth (especially housing), along with solid real income gains contributed to strengthening post-pandemic consumption. Compared with pre-COVID estimates, the marginal propensity to consume out of housing wealth is substantially higher, which, together with large gains in housing prices, made the wealth effect a key driver for post-pandemic consumption growth.