Savings: The Two-Sided Wildcard For Growth

It is also worth noting that consumption has not collapsed as much as it did during the first lockdown as both retail stores and customers have been able to adapt to new circumstances, shifting towards online shopping, and fewer planned expenditures had to be cancelled. Therefore, with the more subdued downswing, an accentuated rebound looks less likely.

Unlike Europe, the US did not enter a full second lockdown with the most onerous restrictions experienced only by Californians. Now that California’s stay at home order has been rescinded and New York and other cities are again open for eat-in dining there is more opportunity to spend.

Recent data has shown that the improved financial position of US households means that when presented with a windfall payment, such as the latest $600 stimulus cheque, consumers have the confidence to spend it. This contributed to a 5% month-on-month jump in retail sales in January with daily credit and debit card transaction data from indicating that the bulk of the additional spending came from lower income households.

This is an encouraging precedent for the outlook for consumer spending since President Biden is proposing to raise the extra Federal weekly unemployment benefit back to $400 per week after it was tapered in 2H20 while also providing an extra $1400 individual stimulus payment. He also has aspirations to raise the minimum wage to $15/hour nationally, which if implemented would further boost the earning power of lower income households.

With the US Covid vaccination programme gaining momentum, there is a realistic chance of a broad economic reopening in mid to late 2Q 2020, including for consumer services, leisure and hospitality. This is potentially one to two quarters ahead of Europe. US job opportunities will therefore improve more swiftly, with surveys already suggesting that households expect jobs to become more plentiful, which could boost the chances that households use some of their accrued savings for spending over coming months. Significantly, the unemployed also have the guarantee of robust unemployment benefits to fall back on should they fail to find work.

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