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U.S. households and small businesses have stockpiled a record cash pile of almost $17 trillion a mind-boggling estimate that exceeds the $16 trillion in fiscal action undertaken by governments around the world to keep the global economy afloat during the pandemic.

That domestic cash hoard has grown exponentially since February 2020 due to three factors: direct government stimulus payments to individuals, shutdown-induced savings from Americans working from home, and small-business decisions to hold onto grants or loans, according to Jim Vogel, a Memphis-based manager at fixed-income dealer FHN Financial, which tracks cash flows.

The magnitude of the cash positions being held is surprising considering the tendency of households and businesses to tap their savings during each of the two or three recessions prior to the pandemic era. After the coronavirus pandemic triggered a deep two-month U.S. recession starting in February 2020, what is different this time around is that savings have soared despite the economy reopening. Two reasons have been offered for this: small businesses look to be focused on rebuilding inventories to brace for pent-up demand, while individuals are opting not to spend money on even the more restricted services and experiences that have now become the norm.

Its a sign of an unusual economy in which an awful lot of people are making money or have money, but are not spending it, Vogel said in a phone interview on Wednesday. There are two sides of this coin: A lot of people are doing well, while some people who depend on that spending are not. And the longer the imbalances last, the longer they take to work back down.

FHN Financials roughly $17 trillion estimate surpasses the $16 trillion figure that the International Monetary Fund estimated in July as the amount of fiscal action taken by governments worldwide to prevent economic collapse during the pandemic.

Vogel said his firm reached its almost $17 trillion estimate by taking the Federal Reserves most recent money-supply data, released on Tuesday, and stripping out the estimated level of demand deposits from corporations and institutional money-market accounts. The nearly $17 trillion figure has grown by about $250 billion over the past three months, he says, in a trend thats upended his expectations for declines in the current quarter. In February 2020, it stood at less than $12 trillion.

Most remarkably, the almost $17 trillion represents money that hasnt been deployed into the U.S. stock market just yet, where the benchmark indexes SPX, +0.22% DJIA, +0.11% are moving further into record territory. In addition to representing spare cash that could still come into equities, the money is acting as a barbell allowing investors already in that market to avoid selling off by much, according to Vogel.

The money is acting as a zero-risk anchor, and theres a reduced need to sell. Its also why the pattern of buying on the dips has worked so well, he says. When an outside shock knocks the economy on its heels, the length of time people hold onto cash is surprisingly long.

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U.S. households and small businesses have stockpiled a mind-blowing record cash pile of almost $17 trillion - MarketWatch