3 Reasons Reflation Won't Crimp Economic Growth In The Charts

As shown in the chart above, the Persona Savings Rate is at near-record levels and multiples of where it has averaged for decades. Like the Household Financial Obligations as a percent of Disposable Personal Income referenced previously, this metric aids in the average household/consumer's ability to combat near-term and momentary inflation. The consumer is essentially flush with cash due to the Cares Act and subsequent government transfer payments. Having said that, the reality is that the Personal Savings Rate was rising well before the pandemic and the government transfer payments issued through fiscal legislation i.e. multiple Cares Act iterations. In fact, the previous decade-long expansion cycle proved the only expansion cycle since the 1970s whereby the Personal Savings Rate actually ROSE during the expansionary period. Take a careful look at the chart above. The gray lines represent recessions and the blue line tracks the Personal Savings Rate. For the most part and since the 1980s, for each expansionary cycle, the Personal Savings Rate is downward trending... until the 2009 post-GFC expansion cycle where it rose.

BofA: Surveyed >3,000 people to ask how they would spend new stimulus checks back in March. Even in the lowest-income category, 53% say they plan to save, pay off debts or invest. With the survey in-hand and recognizing the already abundant Personal Savings rate, fear not! What respondents to such surveys say and do in a consumer-based economy are often 2 different things. While Finom Group would anticipate continued fiscal household disciplines, we also recognize there is an exceptional amount of disposable income to facilitate growing consumer spending.

If you're thinking the consumer only benefits from fiscal policy initiatives and will need them going forward and through the newly forming expansionary cycle... sorry not sorry! So while the current "reflationary" period is to-be-expected, consumer balance sheets, facilitated by record-level Personal Savings Rates, appear to be able to withstand the momentary reflation.

The bar chart above is a snapshot of how the Personal Savings Rate and Household Financial Obligations as a percent of Disposable Personal Income are currently working within the economy and through retail sales. In a pandemic or post-pandemic world, high-frequency retail data such as that provided by the Johnson's Redbook retail sales weekly reporting becomes highly relevant. The Census Bureau reports a more collective and broad-based picture of monthly retail sales, but in between that report economists, strategists and investors can stay up-to-date with the strength of retail or consumption data by way of Redbook weekly retail sales. Given the strength of the household balance sheet, even as the reflationary period ensues, it's clear that the impact is void on the consumer, and we know why.

On Friday, the latest monthly retail sales data will be delivered by the Census Bureau and most economists expect another record level retail sales print. As a reminder, below is a snapshot from the March Census Bureau retail sales report, whereby YoY retail sales grew almost 28% and MoM retail sales grew almost 10 percent.

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