Chart of the Week: Making up for lost time

This week’s chart reminds us that this is no ordinary macroeconomic cycle. On the face of it, both the disposable income and the consumption expenditures of US households may have returned to their pre-COVID trends, measured in real terms, after adjusting for inflation. But that need not be the end of the story, as there remains a considerable dent in consumption. For many, in the US and in other major economies, the pandemic was a period of enforced abstinence when many pleasurable forms of economic activity did not take place. As economies began to reopen, households found themselves, at least in aggregate, with substantial additional resources. Will those households be content to eke out their excess savings pots over the remainder of their lifetimes, as economic textbooks suggest they might, or will they instead seek to ‘make up for lost time’, and fill in that missing consumption as quickly as they are able? If households take the second approach, it can only result in higher inflation. In our Global Outlook, Spring 2024, ‘Making up for lost time’ is one of Fathom’s two risk scenarios. An ultimately futile attempt on the part of some of the wealthier households in the major economies to eat all those restaurant meals that were never eaten, and take all those holidays that were never taken, keeps interest rates higher for longer than would otherwise be the case, putting the fragile corporate sector at risk.
LSEG clients can view charts and analysis from Fathom’s Global Outlook, Spring 2024 in the Datastream Chartbook in LSEG Workspace.

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The views expressed in this article are the views of the author, not necessarily those of LSEG.