A boost to household income for the US economy for stronger growth

Under a $ 900 billion incentive program signed by former President Donald Trump in late December, the federal government sent one-time cash payments of $ 600 to most households. It also pays unemployed workers $ 300 a week in addition to their normal unemployment benefits. Meanwhile, job growth resumed in January following a decline in December. And higher-income households, unable to travel or eat out, have built up a high level of savings.

“The combination will be quite powerful this year in boosting consumer spending,” said Lydia Boussour, senior economist at Oxford Economics. She and her colleagues plan that U.S. production will recover completely by the downturn associated with the pandemic last year, largely due to an increase in consumer spending by this summer.

Oxford Economics predicts that production will grow by 7% this year, which would be the strongest growth in decades. In a poll by the Wall Street Journal earlier this month, economists on average expected gross domestic product to expand by almost 4.9% this year.

Gross domestic product fell by 3.5% in 2020 compared to 2019, the Department of Commerce said Thursday.

Consumer spending is the biggest factor behind growth in the US. Spending rose in the summer, grew modestly in the early fall and then declined in the last two months of last year. The decline at the end of last year occurred when states and cities ordered businesses to close or downsize as virus infections re-emerged, limiting consumers’ ability to spend. The effects of an earlier stimulus bill transmitted at the onset of the coronavirus pandemic have faded.

Thanks to the new stimulus efforts and high savings among higher-income households and households, households have money to spend. Revenue was above pre-pandemic levels in December, and the savings rate is historically high. New viral infections have declined, and several major states, including California and Texas, have eased restrictions in recent weeks.

It seems that these developments have already had a boost in consumer spending. Retail sales, measured by how many households spent at stores and restaurants, rose the most in January since early last summer. Friday’s report will cover how much they spent on all kinds of goods and services.

Scott Molloy, 45, was fired in August as a senior project manager for a real estate developer in San Diego. He started his own consulting business and recovered part of his income.

Like most Americans, he cut spending during the pandemic, mostly by not going out to eat or travel, and he saved between $ 300 and $ 400 a month.

But last week, not long after the governor of California lifted the restrictions on the eatery, Mr. Molloy hangs out with a friend at a bar near the ocean for burgers and beer. And he planned a trip for April to drive to a second home in Oregon, visit family in San Francisco, and visit friends in Lake Tahoe. He plans to fly back. “It will be a full-fledged holiday that I have not taken more than a year,” said Mr. Molloy said.

Such spending will help the economy return to its pre-pandemic power, along with further recovery in a labor market that continues to dig out of the hole created by the pandemic. Consumer spending held up well during the pandemic as consumers paid more for goods, especially long-lasting products such as cars, household appliances and items purchased online. Many people have also upgraded their homes.

However, the service side – restaurants, nail salons, gyms, airlines – still suffers. Expenditure on services is expected to rise this spring as more people are vaccinated.

“People are going to travel more,” she says. Boussour. ‘They’re going back to restaurants and bars, they’re going back to the gym – all the things they basically could not do before the pandemic. This is where you will really see an eruption in your spending. ”

Write to Josh Mitchell by [email protected]