This posting says that the surprising resiliency of the American economy in the post pandemic period is a result of greater capacity of households to spend and a larger than normal increase in the workforce due to immigration since 2020.

The pandemic caused piling up of household savings far in excess of normal financial balances.  In 2020 alone, savings increased 25% over normal rates, adding about $1.6 trillion dollars to the wallets of households.

In 2019, households spent $14 trillion in consumer spending and at year end had about $17 trillion in liquid financial assets. Thus, $1.6 trillion is a one-shot addition to household wealth was important.

This additional wealth came from two sources: (1) special federal outlays in 2020 and 2021 totaling about $800 billion, and (2) a reduction in household spending (travel, restaurants, etc) amounting for many households to a 5% reduction in normal spending (which maybe was $700 billion in foregone outlays).

At the same time this unexpected boost in liquid wealth happened, housing prices went up. Some 62% of Americans own their own homes.  And the stock market soared. The “wealth effect” is commonly thought to increase consumer spending by 3-5% of the increase in wealth.

And at the same time, immigration added about five million people to the American population, over the course of three years (2021-2023).  I’ve discussed this growth several times and will in the future, assessing evidence of its size and the effect on the workforce.  Normally, one would expect a growth of three million over three years. The additional two million translates into over one million additional workers.

Thus, the higher capacity for households to spend matched serendipitously the rise in the supply of workers. I suggest this matching has resulted in higher than normally expected economic growth.  Conventional economic models, in my view, cannot adequately address the one time surge in both wealth and the surge in the workforce.