A $2.5 trillion cash pile hoarded by consumers may be all it
takes to fuel the economic recovery from the COVID-19 pandemic, according to
The Leuthold Group's chief investment strategist James Paulsen.
Consumers have increased their personal savings rate amid
the pandemic as budgets were cut and spending out at places like restaurants
and theaters declined significantly.
The savings rate surged to 35% as the economy went into a
recession earlier this year, and now sits at 15%, which is still size
percentage points above its historical average. Once consumers are convinced that
the economy is on good footing and its safe to get out and spend, economic
growth should soar.
"More than $2.5 trillion of sidelined savings is the
fuel for a growth bomb waiting to explode," Paulsen said, citing
historical data.
When the personal savings rate was above average while
consumer sentiment was higher than its current level, average annualized GDP
growth nearly doubled to 4.44%.
And on top of the heightened savings rate among consumers, a
lack of inventory for a wide range of consumer goods should necessitate
"considerable job creation," according to Paulsen, as companies rush
to replenish their supply of goods.
A surge in housing during the pandemic has led to a shortage
of common consumer goods, and according to US manufacturing and trade
inventories as a percent of nominal GDP, US inventories are the leanest ever,
Paulsen highlighted.
Meanwhile, the economic recovery won't be entirely reliant
on another round of fiscal stimulus, according to Paulsen.
"Additional fuel isn't needed," Paulsen said,
referring to more stimulus. Instead, "the fuse just needs to be lit,"
referring to consumers beginning to spend their savings pile.
An increase in consumer sentiment from its pandemic lows is
materializing, so perhaps that fuse will be lit soon.
"With a pool of excess idle fuel [savings], it has only
taken a bit more confidence to produce a healthy advance in the economy,"
Paulsen concluded.
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