The US spending surge is underway

The US Spending Surge Is Underway

By James Knightley of ING Economics

Friday, March 26, 2021 3:30 PM EDT

Household spending fell back in February after January’s stimulus-led surge. But March and April are set to rebound on yet more stimulus and a broader re-opening so we are penciling in 9% annualized consumer spending growth in the first quarter and 15% in the second.

Shoppers in New York

Stimulus payments creates a strong platform for growth

To get any meaning out of the February personal income and spending report we need to look at it in combination with January data. The $600 stimulus payment in early January, together with ongoing support from extended and uprated unemployment benefits, lifted incomes by 10.1% MoM. Put another way, as the chart below shows, household incomes were $2.5tn higher on an annualized basis versus February last year. An astonishing figure, that has given Americans the cash flow to not only spend more, as seen with the upwardly revised 3%MoM real spending growth figure for January but to also pay down credit card balances and to save more.

The Federal Reserve’s flow of funds data shows that cash, checking, and savings deposits have increased by $3tn since 3Q19. That means as the re-opening gathers momentum there is an incredibly strong platform for consumer spending growth.

The fact that there wasn’t a stimulus payment in February accounts for all of the 7.1% January to February drop in incomes, but again it is important to point out that income levels this February are still $1tn annualized higher than they were last February. With another $1,400 stimulus payment having hit bank accounts in March – nearly $400bn has been paid out by the government - we must be looking for a huge surge in March and April income data.

Incomes have soared through the pandemic

Contributions to the change in household incomes versus Feb 2020 (USDtn)

(Click on image to enlarge)

Source: Macrobond, ING

Spending is surging and will accelerate

February spending fell 1.2%MoM after that 3% January jump. People may well be getting tired of buying physical things as this is all that we have been able to do over the past year. Bad weather in February could also have influenced the data. However, March and April are likely to post incredibly strong spending figures.

1 2

View single page >> |

Disclosure: This publication has been prepared by the Economic and Financial Analysis Division of ING Bank N.V. (“ING”) solely for information purposes without regard to any ...

Disclosure: This publication has been prepared by the Economic and Financial Analysis Division of ING Bank N.V. (“ING”) solely for information purposes without regard to any particular user's investment objectives, financial situation, or means. ING forms part of ING Group (being for this purpose ING Group NV and its subsidiary and affiliated companies). The information in the publication is not an investment recommendation and it is not investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Reasonable care has been taken to ensure that this publication is not untrue or misleading when published, but ING does not represent that it is accurate or complete. ING does not accept any liability for any direct, indirect or consequential loss arising from any use of this publication. Unless otherwise stated, any views, forecasts, or estimates are solely those of the author(s), as of the date of the publication and are subject to change without notice.

The distribution of this publication may be restricted by law or regulation in different jurisdictions and persons into whose possession this publication comes should inform themselves about, and observe, such restrictions.

Copyright and database rights protection exists in this report and it may not be reproduced, distributed or published by any person for any purpose without the prior express consent of ING. All rights are reserved. ING Bank N.V. is authorised by the Dutch Central Bank and supervised by the European Central Bank (ECB), the Dutch Central Bank (DNB) and the Dutch Authority for the Financial Markets (AFM). ING Bank N.V. is incorporated in the Netherlands (Trade Register no. 33031431 Amsterdam). In the United Kingdom this information is approved and/or communicated by ING Bank N.V., London Branch. ING Bank N.V., London Branch is deemed authorised by the Prudential Regulation Authority and is subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority. The nature and extent of consumer protections may differ from those for firms based in the UK. Details of the Temporary Permissions Regime, which allows EEA-based firms to operate in the UK for a limited period while seeking full authorisation, are available on the Financial Conduct Authority’s website.. ING Bank N.V., London branch is registered in England (Registration number BR000341) at 8-10 Moorgate, London EC2 6DA. For US Investors: Any person wishing to discuss this report or effect transactions in any security discussed herein should contact ING Financial Markets LLC, which is a member of the NYSE, FINRA and SIPC and part of ING, and which has accepted responsibility for the distribution of this report in the United States under applicable requirements.

less

How did you like this article? Let us know so we can better customize your reading experience.