The Delta variant and the high prices cannot keep the American consumer

Updates on economic impact of coronavirus

American consumers have been hit in recent weeks price growth it is a resurgent virus. But thanks to a strong fiscal stimulus and steady employment growth, that hasn’t stopped them from spending.

Consumption by U.S. households led to an annualized 6.5 percent increase in the country gross domestic product growth in the second quarter, showing a full rebound during the month of June, according to data released by the Commerce Department at the end of last week. The composition of spending has shifted from goods to services, but the general willingness of buyers to use their money has been indisputable.

“Part of the reason why the economy has been so resilient after such a big shock is the extraordinary ability and willingness of the consumer to spend,” said Michelle Meyer, head of the U.S. economy at Bank of America. “Fundamentals in general are still strong, and there will be more engagement than will happen in the fall as people return to the office and go back to school. ”

So far, economists and officials have not rushed to lower their forecasts for the U.S. economy based on the spread of the Delta variant, even if it has brought more risks to the outlook.

Jay Powell, chairman of the Federal Reserve, suggested at a press conference last week that there was now less of a relationship between the state of the pandemic and the economic situation than there had been in the past and that individuals and firms seemed more able to adapt.

“With Covid’s successive waves last year and a few months now, there has been a tendency to be less in the way of economic implications than any wave,” Powell said. “We don’t have a strong sense of how it can work, so we’ll follow it closely.”

Aneta Markowska, chief financial economist at Jefferies, said that “household finances have been in their best shape in decades,” citing strong income statements and a huge stock of accumulated savings, which she estimated was $ 2.4 tn, with about half of those sitting in cash and checking deposits.

Durable goods spending contracted for a third month in a row, but the most recent recovery was driven in large part by a 7.7 percent decline in car sales, given the scarcity and surprisingly high prices. highs have driven buyers away. Elsewhere spending has been strong – and the personal savings rate, which reached 26.9 percent in March, has dropped to 9.4 percent.

“The last time stimulus was over and over,” Markowska said. “We have not only compensated the income lost due to the pandemic, it has more than replaced it.”

Business spending was also in return faster than expected, although it has always delayed the growth of consumer spending, Sachin Mehra, chief financial officer of Mastercard, said in an interview.

“What we’re seeing is that people are increasingly feeling the need to go out and go see customers, go see their suppliers, engage with their business partners, and that manifests itself in terms of how they perform. his business spends. ”

This trend is happening for small businesses, medium-sized companies and large multinationals, helping the payments group report this past week a 36 percent jump in quarterly revenues.

Until now, small businesses have been leading the charge, according to rival Mastercard American Express. Spending for small and medium-sized businesses in the U.S. rebounded to 73 percent from pre-pandemic levels in the most recent quarter, while corporate customers paid less than a quarter of what they spent on Amex cards for the same period in 2019.

“What’s interesting is that small businesses, even now, travel more than large businesses,” said Jeff Campbell, chief financial officer, adding that the trend was unlikely to reverse by the end of the year.

“They’re big companies where you don’t really see any sign of life right now, and we’re not counting on any of them.”

However, both companies are optimistic that business trips will return, especially when their own employees start booking flights. Mastercard has already resumed in-person meetings with customers, which Mehra expects to have a ripple effect across the industry.

“The fear of failure settles down,” Mehra said.

So far, there is little evidence that higher inflation puts a large damper on spending, both on staff and on business. While inflation expectations were set to rise to 4.7 percent for next year, according to the University of Michigan’s consumer sentiment survey, they are expected to return to 2.8 percent over the horizon 5-10 years, noting that most Americans do not believe in a dangerous spiral and are quite frustrated by recent data.

“People recognize that prices are rising, but they have ammunition to keep things going,” said James Knightley, ING’s chief international economist. “They may not be happy to spend $ 9 for a beer, but they will because they haven’t made it in so long.”

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