Tue. Oct 19th, 2021

Coronavirus Economic Impact Updates

US consumers hit in recent weeks rising prices and a reviving virus. But thanks to the solid fiscal stimulus and steady growth in jobs, it has not stopped them from spending.

Consumption by US households caused an annual increase of 6.5% in the country gross domestic product growth in the second quarter, showing a healthy recovery during June, according to data released by the trading division late last week. The composition of spending shifted from goods to services, but the general eagerness of buyers to use their cash was unquestionable.

“Part of the reason the economy was so resilient after such a huge shock is the extraordinary ability and willingness of the consumer to spend,” says Michelle Meyer, head of U.S. economics at Bank of America. ‘The general principles are still strong, and in the autumn more involvement will take place as people return to the office and go back to school. ”

So far, economists and officials are in no hurry to downgrade their forecasts for the U.S. economy based on the spread of the Delta variant, although this has brought more risks to the outlook.

Jay Powell, chairman of the Federal Reserve, suggested at a news conference last week that there is now less of a link between the state of the pandemic and the economic picture than it was in the past and that individuals and business more able to adapt.

“With the successive waves of Covid over the past year and a few months now, there are usually less economic consequences for each wave,” Powell said. “We do not have a strong idea how it can work out, so we will monitor it closely.”

Aneta Markowska, chief financial officer at Jefferies, said “” household finances were in their best condition in decades “, citing strong income statements and a huge stockpile of savings, which she said was $ 2.4 tons, with about half of it in cash and checking deposits.

Expenditure on durable goods has shrunk for a third consecutive month, but the most recent pullback was largely driven by a 7.7 percent decline in car sales, as scarce and surprisingly high prices turned buyers off. Elsewhere, spending was strong – and the personal savings rate, which reached 26.9 percent in March, fell to 9.4 percent.

“The last round of stimuli was above and beyond,” Markowska said. “We not only made up for the lost revenue due to the pandemic, it more than replaced it.”

Business spending is also recovering faster than expected, although it has still slowed the increase in consumer spending, Mastercard CFO Sachin Mehra said in an interview.

‘What we’re seeing is that people have more and more the need to come out and go to the customers, to go to their suppliers, to communicate with their business partners, and this is manifested in terms of how they carry out their commercial activities. . spend. ”

This trend applies to small businesses, medium-sized businesses and large multinational businesses, which helped the payments group to report 36% quarterly revenue over the past week.

According to Mastercard’s competitor, American Express, small businesses were the main ones. Expenditure on small to medium-sized businesses in the U.S. has returned to 73 percent of pre-pandemic levels in the past quarter, while corporate clients accounted for less than a quarter of the money they spent on Amex cards in 2019 .

“What’s interesting is that even small businesses are traveling more now than large businesses,” said CFO Jeff Campbell, and the trend is unlikely to return by the end of the year.

“These are the big businesses where you’re not seeing any signs of life right now, and we do not count on them.”

However, both companies are optimistic that business travel will make a comeback, especially as their own employees start booking flights. Mastercard has already resumed personal encounters with customers, which Mehra expected would have a ripple effect across the industry.

“The fear of missing out goes in,” Mehra said.

So far, there is little evidence that higher inflation can put a big damper on spending, whether on the personal or business side. Although inflation expectations for next year have risen to 4.7 percent, according to the University of Michigan Consumer Sentiment Survey, they are expected to fall to 2.8 percent in the 5-10 year horizon, indicating that most Americans are not in a dangerous spiral and has been relatively unaffected by recent data.

“People recognize that prices are rising, but they have the ammunition to still do things,” says James Knightley, chief economist of the international economy at ING. “They may not spend $ 9 on a beer, but they’re going to do it because they did not do it for so long.

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