Americans' real incomes are stagnating or declining thanks to high inflation, yet consumers are still spending at a rapid pace — two things that, taken together, are a bit of an economic puzzle.

What’s going on: One explanation dates back to pandemic-era fiscal policy, the effects of which are still rippling through the economy.

Why it matters: The lagged COVID-era effects of stimulus checks, topped-up unemployment benefits, and unspent income has provided a cushion for the consumer and buoyed demand this year — allowing Americans to keep spending even as inflation chips away at their incomes.

Driving the news: The personal saving rate — the share of disposable income left over after spending — dropped to a rock-bottom 2.3% in October, as consumer spending accelerated at a healthy clip.

• In data that goes back more than 60 years, there's been just one instance of a lower saving rate (July 2005).

Between the lines: As Americans spend down their accumulated savings, their voracious appetite for goods and services will wane.

• The worry is that savings will dry up just as the full effect of the Fed's interest rate increases hit economic activity, creating a double-whammy that hits growth in 2023.
• Roughly $1.5 trillion in accumulated savings will run out in the middle of next year, JPMorgan Chase CEO Jamie Dimon told CNBC yesterday.
• “When you’re looking out forward, those things may very well derail the economy and cause a mild or hard recession that people worry about," Dimon said.

Flashback: It marks a stunning reversal from the depths of the pandemic, when the saving rate skyrocketed to a record high.

• In the decade leading up to 2020, the personal saving rate averaged roughly 7%. But it averaged twice that throughout the first two years of the pandemic, a period that included three rounds of fiscal aid and — thanks to the global shutdown — limited places to spend.

Context: That resulted in a huge pile of excess savings for consumers. Recent Fed research estimated that households accumulated roughly $2.3 trillion in savings through last summer. That stockpile started declining at the end of last year; as of the second quarter, it stood at $1.7 trillion.

• The biggest contributor to excess savings for the richest households was the lockdown-driven reduction in spending, the Fed found. For the bottom half of the income distribution, the fiscal transfers were the primary contributor.
• The poorest Americans are much closer to exhausting the built-up excess savings than the richest ones.

What they're saying: Economists have a slew of guesses about when those savings will be exhausted — another important variable for how the economy develops.

• Analysts at Bank of America found one excess savings estimate — around $930 billion — would last another eight months based on recent trends. But their alternate estimate suggests excess savings could last for up to two more years.