Here is The Oregonian’s weekly look at the numbers behind the state’s economy. View past installments here.
As Oregonians hunkered down during the COVID-19 pandemic, they also began socking away cash.
Deposits in Oregon-based banks jumped 25% the 12 months ending June 30, 2020, according to new data from the Federal Deposit Insurance Corp. Deposits at these Oregon banks climbed nearly 13% more the following year.
That’s not typically what you see during a recession. But nothing about the pandemic recession was typical.
The federal government sent billions of dollars to the state in the form of stimulus payments, unemployment benefits and forgivable business loans. So even as the state shed hundreds of thousands of jobs, many people suddenly had a lot of money coming in.
“During the pandemic, people held some of that as savings. They paid down debt. And if you’re scared, having some precautionary balance makes a lot of sense,” said John Mitchell, a longtime economist with U.S. Bancorp in Portland, now an economic consultant.
People essentially used their savings as a security blanket during the worry and tumult that accompanied the pandemic’s early days.
Oregon banks’ statewide deposits totaled $113 billion at the end of June, crossing the $100 billion threshold for the first time. That’s only a small piece of Oregonians’ total savings, though. Most deposits are held by national institutions, which reported similar growth across the country.
“We’ve pushed a lot of cash onto household balance sheets,” said University of Oregon economics Professor Tim Duy. “On the one hand, that’s a good thing. Households are considerably wealthier than they were prior to the pandemic, oddly enough.”
The stimulus payments blunted the pandemic’s economic impact, holding down poverty levels and keeping households afloat during a period of unprecedented upheaval.
Many Oregonians, like many Americans, now have a reservoir of savings to draw from. They could pull from that gradually, Duy said, providing a more gradual, long-term economic stimulus. Or they might hold onto it indefinitely, perhaps saving for a house or retirement.
But Duy said all that cash has a potential downside. It’s one factor pushing up inflation, as people look for things to spend their money on and bid up retail prices. The accumulated savings could prolong inflationary pressures if people consistently spend down their savings.
The savings could also be driving up stocks and the price of emerging assets, like NFTs – “non-fungible tokens,” which serve as a unique identifier for digital collectibles. Banks pay very low interest rates on savings and people are looking for more lucrative places to park their money.
Potentially, Duy warned, that could create asset bubbles on Wall Street or in alternative investments if people bid up the prices of those assets to unsustainable levels.
“Those are realistic concerns, or issues, to be considered when thinking about this particular situation,” he said.