BlackRock Investment Institute

Macro insights

Consumption key to the restart

A rapid restart in consumption will be key to the U.S. economy returning to its pre-Covid trend by the end of the year. We expect the pent-up demand built up since last year among U.S. consumers to unleash as the economic reopening forges ahead on the back of an accelerated vaccine rollout.

Saving it up

Chart showing savings as a share of disposable income

Sources: BlackRock Investment Institute, Bureau of Economic Analysis, with data from Haver Analytics, April 2021. Notes: The chart shows U.S. personal savings as a share  of  disposable personal income. The dotted line shows our estimate of the path for savings rate to revert to its pre-Covid level by March 2022.

Consumer spending collapsed when lockdowns were introduced early last year, yet the saving rate surged partly thanks to stimulus payment driving up aggregate income. See the chart. Most of the increase in the saving rate likely reflects “forced” saving as consumption fell in response to lockdowns and not due to a shortfall of demand, in our view.

As the economy reopens, the opportunities to spend expand. The expected strength of the job market rebound will likely lead to greater confidence to spend, reducing precautionary savings, in our view. We expect consumer spending to return to its pre-Covid trend by the middle of 2021 – followed by an overshoot. This means consumer spending could pick up the baton just when the boost from fiscal policy to sequential GDP growth starts to fade. 

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