Too much stimulus in the economy?

 The Conference Board  forecasted a record US Real GDP growth of 9.0 percent (annualized rate) in Q2 2021 and 6.6 percent (year-over-year) in 2021. Compare that to 2019 real GDP growth of 2.3 percent in 2019 and 2.9 percent in 2018. In 2020, the U.S. economy shrank by the largest amount in 74 years, as unemployment rate peaked at a historic high of 14.8% in April 2020 (as of June ’21 unemployment is down to 5.9%). 

University of Michigan Consumer sentiment has edged up to 85 from the pandemic low of 71.8 last April (still not quite back to the pre-pandemic high of 99.3 in Dec 2019).

This strength seems to be translating well to consumer spending. Personal Consumption Expenditures (PCE), after dropping 18% from Feb ’20 to April ’20, grew back ~28% (April ’20 to May ’21), erasing all of the declines to bring it back in line with its multiyear 3.5% annualized growth rate. The National Retail Federation revised its retail sales growth expectation to 10.5 – 13.5 percent (vs. 2020), to a range between $4.44 trillion and $4.56 trillion (up from 6.5 percent – 8.2 % expectation just 6 months back). US demand for goods and services is driving global economic recovery for the first time since 2005 (https://lnkd.in/e2KgbAX).

Of course, the sheer breadth and magnitude of the stimulus aid has directly impacted the strength of the GDP rebound in 2021. According to the Committee for a Responsible Federal Budget (https://lnkd.in/erkXHc6), of the $5.9 trillion ($5.2 trillion net) of enacted COVID relief, $3.6 trillion was committed or disbursed over the one-year period beginning last April, resulting in a nominal disposable personal income (DPI) growth of 10.6 percent, or 2X the income growth of 5% per year over the prior three years. According to CRFB, absent COVID relief and its economic effects, personal income would have fallen by about 5 percent. For now, we can be content with a turbocharged US economy (and contend with the inflation risk!). #economy #growth #retailsector #markets #inflation #consumerspending #consumersentiment

Leave a Comment