Ravenscroft Group | Richard Allen
08 Feb 21
Weekly update - Champing at the bit...
One of the key consequences of the coronavirus pandemic has been the curtailing of consumer spending in the Northern Hemisphere. This is perhaps most notable in North America, the UK, France and Germany where lockdowns and social distancing have limited what households can choose to spend their money on. Unlike in previous recessions, personal incomes have remained highly resilient due to stimulus cheques courtesy of Uncle Sam in the US and job retention schemes in the UK and Europe. As a result of this, there has been a jump in the household savings ratio on both sides of the Atlantic. With the rollout of vaccines gathering pace, and the tantalising prospect of an easing in restrictions, the stage may be set for a wave of pent-up consumer demand.
The possibility of a rise in consumer spending this year would be a further positive for the global economy and would be most keenly felt in consumer-led economies such as the US and UK. In turn, this may help to replace those jobs, which have been lost in the pandemic and ultimately increase corporate earnings. However, the extent of it is likely to vary from country to country.
The US appears particularly well placed to benefit from the potential deployment of excess household savings when coupled with a buoyant housing market and rising household income. According to analysis conducted by Berenberg Economics, US households saved, on a combined basis, $1.4 trillion in the first nine months of 2020, which is double the same period in 2019. US household income is expected to grow further this year as one-off federal cash payments and benefits are received and that is before President Joe Biden’s stimulus package makes its way through the Senate.
In the UK, savings data seems to be more skewed in favour of higher earnings households and those in retirement. Historically these two groups have tended to be more tempered in their spending habits so the impact in the UK may be more mixed. However, having said that UK households have as a whole repaid some £16bn of unsecured lending in 2020, such as credit cards and personal loans. When lockdown restrictions are eased, excess savings and credit balances could combine delivering a potent shot in the arm to the recovery of the UK.
Turning to financial markets, equity markets enjoyed a rebound last week as worries over new variants of Covid-19 in Europe eased and investors welcomed the positive news that the US appears to be on track to surpass 100m. vaccinations being administered. Fourth quarter company results also surprised on the upside and the dampening down of retail investor speculation in markets has also aided sentiment. With a quieter economic data calendar in the week ahead, investor attention is instead likely to focus on Joe Biden and his efforts to progress the stimulus package. With both Congress and the Senate seemingly “champing at the bit”, hopes are rising of a deal.