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The US economy has nearly recovered to pre-crisis levels of GDP as the easing of COVID-19 restrictions has led to a pickup in the consumption of goods. During the pandemic, higher incomes and lower spending caused households to build up excess savings worth close to 10% of US GDP by the end of 2021 Q1. In Fathom’s view, around 25% of these forced savings will be spent within the next twelve months. If this happens then we are likely to see a boom in the service sector and ultimately higher inflation.
The number of domestic airline passengers, one key indicator of service sector activity, grew sharply in the first quarter of 2021, up 60.5 per cent on the previous month. However, international travel remains far below pre-pandemic levels. While many countries have been moved from the US State Department’s Level Four “do not travel” list, to the Level Three or “reconsider travel” list, the Centers for Disease Control and Prevention still advises US citizens not to travel internationally until they are fully vaccinated against COVID-19. Restrictions are unlikely to be lifted soon due to concerns over the spread of new variants. The decoupling of international travel from other indicators of service sector activity is likely to continue for a while.
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