Increasing Household Income Premium US Economy for Stronger Growth

Under a $ 900 billion stimulus program signed by former President Donald Trump in late December, the federal government has sent single $ 600 cash payments to most households. In addition, he has paid unemployed workers $ 300 a week above his normal unemployment benefits. Meanwhile, employment growth resumed in January after a fall in December. And higher-income households, which cannot travel or dine, have accumulated a high level of savings.

“This combo will be quite powerful to drive consumer spending this year,” says Lydia Boussour, a senior economist at Oxford Economics. She and her colleagues predict that this summer U.S. production will have fully recovered from last year’s pandemic-related recession, mainly due to an increase in consumer spending.

Oxford Economics predicts production will grow 7% this year, which would be the strongest growth in decades. In a Wall Street Journal poll earlier this month, economists expected the average gross domestic product to expand by about 4.9% this year.

Gross domestic product fell 3.5% in 2020 compared to 2019, the Commerce Department said Thursday.

Consumer spending is the biggest factor in U.S. growth Spending soared in the summer, grew modestly in early fall and then fell in the last two months of last year. The decline at the end of last year came when states and cities ordered companies to close or downsize as virus infections resurfaced, restricting consumers ’spending power. In addition, the effects of a previous stimulus bill approved at the start of the coronavirus pandemic faded.

Thanks to new stimulus efforts and high savings among wealthy, higher-income households, households have money to spend. Revenue topped pre-pandemic levels in December and the savings rate is historically high. New virus infections have slowed and several large states, including California and Texas, eased restrictions in recent weeks.

It seems that these developments have already translated into an increase in consumer spending. Retail sales, which measure how much households spent on shops and restaurants, rose in January since early last summer, according to previous government data. Friday’s report will include how much they invested in all kinds of goods and services.

Scott Molloy, 45, was fired in August as a senior project manager for a real estate developer in San Diego. He started his own consulting business, restoring some of the revenue, but not all.

Like most Americans, it has reduced spending during the pandemic, mostly by not going out to eat or travel, saving between $ 300 and $ 400 a month.

But last week, shortly after the California governor lifted gastronomic restrictions, Mr. Molloy went out to fetch burgers and beer with a friend at a pub near the ocean. And he has planned a trip for April to move up to a second home in Oregon, visit relatives in San Francisco and visit friends on Lake Tahoe. He plans to go back. “It’s going to be a full-fledged vacation that I haven’t taken in over a year,” Molloy said.

These expenditures will help the economy regain its pre-pandemic vigor, along with an additional recovery in a labor market that is still being extracted from the hole created by the pandemic. Consumer spending has held up very well during the pandemic, as consumers have sought more goods, especially long-lived products such as cars, appliances and items bought online. Many people have also moved house.

However, the share of services (restaurants, nail salons, gyms, airlines) continues to suffer. Expenditure on services is expected to increase this spring, as more people are vaccinated.

“People will travel more,” Ms. Boussour says. “They will go back to restaurants and bars, they will go back to the gym: all the things they were basically not able to do before the pandemic. This is where you really see an explosion of spending. “

Write to Josh Mitchell to [email protected]