The US economy continues to outperform, with growth in the final quarter of 2023 up 3.1% year on year versus equivalent figures of 0.1% and -0.2% in the euro area and the UK respectively. One reason for this outperformance is the growing divergence in household consumption patterns between the US and Europe. During the COVID-19 pandemic, widespread lockdowns compelled households to curtail their typical expenditures, effectively resulting in an enforced windfall gain. In Europe, this primarily stemmed from restrictions on spending, while in the US, it was amplified by generous stimulus checks to US households, which meant both savings and disposable income rose by considerably more in the US than in Europe. US household spending has returned to its pre-COVID trend, unlike the euro area and the UK where household spending remains below pre-COVID trends, as shown in the chart below. The fact US household spending is holding up better than disposable income implies US households are drawing on their excess pandemic savings as a way of ‘making up for lost time’. This increase in spending, amidst rising interest rates, will boost growth in the short-term, therefore making imminent interest rate cuts by the Fed less likely. Fathom will be discussing this and more in Fathom’s Global Outlook, Spring 2024 — charts and analysis will be available to LSEG clients in the Chartbook soon.
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The views expressed in this article are the views of the author, not necessarily those of LSEG.
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