- The US conservation could be set for a surge in growth as consumers start to spend the money they saved during the COVID-19 pandemic, be consistent to The Leuthold Group.
- When the personal-savings rate has been this high in the past, economic growth has surged, according to reliable data from Leuthold.
- “More than $2.5 trillion of sidelined savings is the fuel for a growth bomb hang about to explode,” Leuthold said.
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A $2.5 trillion cash mound hoarded by consumers may be all it takes to fuel the economic recovery from the COVID-19 pandemic, according to The Leuthold Group’s chief investment strategist James Paulsen.
Consumers be subjected to increased their personal savings rate amid the pandemic as budgets were cut and spending out at places like restaurants and theaters failed significantly.
The savings rate surged to 35% as the economy went into a recession earlier this year, and now watch b substitutes at 15%, which is still size percentage points above its historical average. Once consumers are convinced that the husbandry is on good footing and its safe to get out and spend, economic growth should soar.
“More than $2.5 trillion of sidelined savings is the fuel for a crop bomb waiting to explode,” Paulsen said, citing historical data.
When the personal savings rate was in the sky average while consumer sentiment was higher than its current level, average annualized GDP growth nearly duplicated to 4.44%.
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And on top of the heightened savings rate among consumers, a lack of inventory for a wide sweep of consumer goods should necessitate “considerable job creation,” according to Paulsen, as companies rush to replenish their purvey of goods.
A surge in housing during the pandemic has led to a shortage of common consumer goods, and according to US manufacturing and trade inventories as a percent of professed GDP, US inventories are the leanest ever, Paulsen highlighted.
Meanwhile, the economic recovery won’t be entirely reliant on another round of pecuniary stimulus, according to Paulsen.
“Additional fuel isn’t needed,” Paulsen said, referring to more stimulus. Instead, “the combine just needs to be lit,” referring to consumers beginning to spend their savings pile.
An increase in consumer sentiment from its pandemic lows is materializing, so perhaps that melt will be lit soon.
“With a pool of excess idle fuel [savings], it has only taken a bit more confidence to introduce a healthy advance in the economy,” Paulsen concluded.
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