Savings: The Two-Sided Wildcard For Growth

In the US, the story is slightly different. Rather than adopt the European style furlough schemes which were designed to preserve jobs, the US government took the decision to avoid interfering directly in the labour market. Instead, they chose to strengthen the financial safety net for those who lost their jobs by extending the duration of unemployment benefits, expanding the number of people who could receive them and then initiating a new $600 weekly Federal unemployment benefit to boost incomes. In consequence, the University of Chicago calculated that 69% of unemployment benefit recipients actually earned more money being unemployed than when they were working. The median recipient received 134% of their previous after-tax compensation.

This has promoted a broad strengthening of the US household balance sheet with cash, checking and savings deposits increasing by $2 trillion between 4Q 2019 and 3Q 2020 while outstanding credit card balances have fallen to a four-year low. Given the upscaled and expanded unemployment benefits and the $1200 CARES Act stimulus payment, increases in US savings are likely to have been spread more broadly across the income spectrum versus Europe. ING’s own international savings survey backs this up based on responses to who has increased savings rather than run them down.

Factors that have boosted US household incomes each month (annualized change in income versus February 2020 - USD tn)

Source: Macrobond, ING

The savings-consumption rotation during the second lockdown

Savings increased again during the second lockdown but in the eurozone, the willingness to spend has weakened, falling to the lowest level since June. This drop masks significant changes between what are basically two groups; the countries which entered a second lockdown in November like France or Belgium and the countries which entered a strict lockdown only at the end of 2020, like Germany. The former have seen a very subdued willingness to spend since the initial spike after the reopening, while the latter saw the hit to consumer confidence only recently. Overall, the willingness to spend remains low, which argues against a sharp surge in consumption once economies reopen. In fact, it looks as if involuntary savings have been replaced by precautionary savings. At the same time, however, don’t forget that a reopening will boost demand for services like hospitality, leisure and culture as well, something that is not fully captured by traditional surveys.

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Disclaimer: This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does ...

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