The Other Side Of The Consumer

The missing piece so far is consumers. We’ve gotten a glimpse at how businesses are taking in the shock, both shocks, actually, in that corporations are battening down the liquidity hatches at all possible speed and excess. Not a good sign, especially as it provides some insight into why jobless claims (as the only employment data we have for beyond March) have kept up at a 2mm pace.

These are second order effects. In terms of consumer spending, it’s, as always, spend versus save. Are consumers going to change their behavior, too? If the propensity to spend was one level before March, will it be at a lesser rate once the non-economic dislocation passes by? If so, that will cause and amplify further not-short run economic damage.

That’s how exogenous shocks like COVID-19 become far more than the incidental damage they cause. The lingering demand destruction is brought about by changes in how everyone in it behaves – if there are any.

Right now, the mainstream assumption is for the biggest and best “V”; that once the economy reopens everything will go right back to the way it was before anyone had heard of the coronavirus. Furthermore, the government’s recklessness in fiscal as well as monetary matters is being viewed as more than sufficient insurance so as to make this likely.

Again, so far the business side isn’t on the government’s side (including Jay Powell).

The BEA today published its April estimates for personal income and spending – the consumer end of the economy. As with everything else to this point, the first step into the crisis has been a disaster though I’ll qualify this straight away by noting we shouldn’t put too much stock into this one month of data.

For one thing, April is completely out of the ordinary, a true outlier month especially for consumers if ever there was one.

Second, the government’s transfer payments had just started showing up. What these figures show is that Americans were finally getting paid on their unemployment claims as well as “helicopter” money though they didn’t spend much or any of it.

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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