Don’t underestimate the U.S. consumer

Markets have massively recovered from panic-driven lows last spring, and investors are now rightly contemplating if we have come too far too fast. Many are asking if the unprecedented fiscal stimulus and monetary policy support that fueled this sharp rally has pulled forward the next 12 months of return?

While it would not be unusual (or surprising) for the market to go through a bit of near-term consolidation given the speed and magnitude of moves over the last year, we remain confident that we are in the early innings of this cycle, the trend is your friend (and remains higher), and any material weakness should be viewed as an opportunity.

While there are many reasons to remain optimistic, let’s focus today on consumers - arguably the most important growth driver of the U.S. economy. Consumption makes up roughly two thirds of the U.S. economy, a share that has consistently risen over the past 5 decades.

The good news for us is that the U.S. consumer is on one of their heathiest footings in decades, particularly relative to past periods immediately following recessions. It’s no secret that the massive government transfers over the past year have been a boon for consumer incomes, with disposable income growth meaningfully higher in 2020 vs. 2019 (which compares favorably to the consistent decline in incomes we saw throughout 2008 and into 2009).

What’s interesting to observe though is what consumers did with those windfalls. According to Federal Reserve Bank of New York Surveys, consumers spent less than a third of each round of stimulus checks and the amount spent dropped with each successive round. Instead, they overwhelmingly used the money to build-up savings and pay down debt. The key conclusion is that less than a third of stimulus checks have been used to support the economy in the near-term, with two thirds remaining to support growth in future years. In fact, the personal savings rate as of February sat at 13.6% which is amongst the highest levels we have seen since the early 1980s.

How households use their stimulus checks

chart showing comparison of 2016 vs 2021 index


Source: New York Fed Survey of Consumer Expectations (SCE). Notes: Round 1 results are based on 1,423 respondents to the June 2020 special SCE survey who reported receiving a stimulus check. Rounds 2 and 3 results are based on 1,062 and 1,007 respondents to the January and March 2021 Core SCE surveys, respectively, who received or expected to receive second- and third-round stimulus checks.

Perhaps, more interesting is that this isn’t a new phenomenon. As you can see below, after a massive buildup of debt in the lead up to the Global Financial Crisis, consumers have been de-levering consistently ever since, with a cumulative drop in household debt to GDP of approximately 20%.

United States household debt as % of GDP

United States household debt as % of GDP


Source: Bloomberg as of April 28, 2021.

Finally, with the precipitous drop in interest rates, household debt service costs as a percentage of disposable income have also fallen massively to lowest levels we have seen since the early 1980s.

To sum it up, there is no doubt that markets have rallied and that expectations are much higher today than they were over the past year. But equally important, the fundamental backdrop is incredibly healthy, we believe we are still in the early innings of this expansion and investors who stay the course will be rewarded.

Michael Fredericks
Head of Income Investing for BlackRock Multi-Asset Strategies & Solutions
Michael Fredericks, Managing Director, is head of Income Investing for the BlackRock Multi-Asset Strategies & Solutions group and lead portfolio manager for a global ...
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Justin Christofel, CFA
Portfolio Manager, Multi-Asset Income Team
Justin Christofel, CFA, CAIA, Managing Director, is a portfolio manager on the Multi Asset Income team within BlackRock Multi-Asset Strategies & Solutions group. He ...
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