June 1, 2021

Chart of the Week: Recession? What recession?

by Fathom Consulting.

The recession from which most major economies are now emerging was unlike any other. Here we present just one example of the many different charts we could use to illustrate this point. Owing to the scale of the fiscal support packages put in place by authorities in the US, not only did household incomes not suffer a sustained fall during the deepest recession on record, they actually began to rise at a more rapid rate. Consumption of goods fell a little in the early months of the pandemic, but has subsequently recovered to such an extent that it is now above its pre-COVID trend. With ballooning incomes but limited opportunities to spend, particularly in the all-important services sector, US households had, by the end of 2021 Q1, built up excess savings worth close to 10% of US GDP. We expect to see around a quarter of these savings spent during the remainder of this year, boosting consumption of services as households effectively make up for lost time. If we are right, we are likely to see a material, cyclical pickup in inflation, posing a challenge for the FOMC, which has signalled that it does not intend to raise the Fed funds rate until at least the end of 2023.

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