Add news
March 2010
April 2010
May 2010June 2010July 2010
August 2010
September 2010October 2010
November 2010
December 2010
January 2011
February 2011March 2011April 2011May 2011June 2011July 2011August 2011September 2011October 2011November 2011December 2011January 2012February 2012March 2012April 2012May 2012June 2012July 2012August 2012September 2012October 2012November 2012December 2012January 2013February 2013March 2013April 2013May 2013June 2013July 2013August 2013September 2013October 2013November 2013December 2013January 2014February 2014March 2014April 2014May 2014June 2014July 2014August 2014September 2014October 2014November 2014December 2014January 2015February 2015March 2015April 2015May 2015June 2015July 2015August 2015September 2015October 2015November 2015December 2015January 2016February 2016March 2016April 2016May 2016June 2016July 2016August 2016September 2016October 2016November 2016December 2016January 2017February 2017March 2017April 2017May 2017June 2017July 2017August 2017September 2017October 2017November 2017December 2017January 2018February 2018March 2018April 2018May 2018June 2018July 2018August 2018September 2018October 2018November 2018December 2018January 2019February 2019March 2019April 2019May 2019June 2019July 2019August 2019September 2019October 2019November 2019December 2019January 2020February 2020March 2020April 2020May 2020June 2020July 2020August 2020September 2020
1234567891011121314151617181920
21
22
23
24
25
26
27
28
29
30
News Every Day |

The economy was supposed to drop off a cliff when the coronavirus aid dried up. It didn't. Here's why.

small business reopen reopening
  • Economists predicted that Americans' consumption — and in turn the US economy — would fall off a cliff when Congress' coronavirus relief funds dried up at the end of July.
  • But instead indicators of household consumption have generally improved, as has the news about the spread of the virus itself.
  • While some people are no doubt struggling, the US economy appears to be slowly improving.
  • There are still risks ahead, but this is good news.
  • This is an opinion column. The thoughts expressed are those of the author.
  • Visit Business Insider's homepage for more stories.

Near the end of July, it seemed like all signs were pointing to even more economic pain. 

CNN Business reported: "The economy is once again teetering on the edge of a so-called fiscal cliff … some experts warn that consumer spending could dry up if there isn't a sufficient level of new stimulus."

It was hard not to accept the premise at the time. After all, the income support provided as part of Congress' coronavirus relief bill was set to dry up, so it made sense that consumption would suffer. The downside risk to the economy was obvious. 

However, a surprising thing happened as the US economy fell off the fiscal cliff: consumers' spending strengthened modestly. Just look at the evidence:

  • In August, unit auto sales strengthened to 15.2 million units annualized from 14.5 million units in July, beating consensus estimates and continuing a fairly rapid recovery off the lows.  
  • Restaurant spending appears to have advanced too. According to data from OpenTable, seated diners at restaurants were off about 50% against year-ago levels at the end of August, up from being off 60% at the end of July. 
  • Credit and debit card spending data also show sequential growth. Using one popular measure, consumption was stronger at the end of August than the start of it. 

None of this is to say that consumption did not slow for those workers who saw the $600 a week enhanced unemployment insurance benefits dry up. Indeed, there is some evidence that consumption for this group fell. But, there were clearly offsetting factors. 

  • First, COVID-19 case growth slowed. Daily case growth fell by roughly one-third over the course of the month. The Fed has noted that "the path of the economy will depend significantly on the course of the virus." In this case, the slowing case growth has likely led to people feeling a bit more comfortable engaging in normal activities.
  • Second, there remains a large pool of available savings for households to draw down. The personal saving rate is 17.8%, roughly 10 percentage points above February level. Jobless insurance benefits equal 7.6% of disposable income. While the tightening in August is large, it won't be repeated again in September. 
  • Third, it would be one thing if households were only drawing down saving to lift spending. That would be unsustainable. But that's not what's happening. After all, wages and salaries are back on the rise as the labor market recovers. Are conditions good? No. But, there's no denying sequential improvement. By August, we estimate that private wages and salaries will be at 96% of their February level.  

Some continue to argue that a fiscal shock will reverberate any moment now, give it time, a Wile E. Coyote moment awaits or so the thinking goes. But real life is not like a Wile E. Coyote cartoon. In reality, you fall right after going over the cliff. If households just suffered a massive income shock, would they just keep on spending as if nothing has changed? Of course not! 

One of the surprising data-points of late has been an uptick in consumption for those households in low-income zip-codes. People tend to base their behavior on what they see happening in front of them, and they likely see things getting better, not worse

In short, the fiscal squeeze certainly doesn't help, but that's not the only thing happening in the economy. Take a more holistic view. 

Screen Shot 2020 09 15 at 9.20.59 PM

In the coming weeks and months, we continue to see offsets to the fiscal squeeze. Importantly, better news on virus suppression is pushing policymakers in some regions of the country to finally get going on the reopening of the economy. Consider the news in recent weeks:

  • AMC announced that it would have over 70% of its domestic theaters open by the Labor Day weekend, albeit with seating restrictions. Note that large markets like New York City have yet to reopen. 
  • A number of large financial institutions have announced beefing up office attendance in the coming weeks. This will likely spill over into other parts of the economy.
  • Miami recently reopened indoor dining (again) and New York City has finally green-lit indoor dining at limited capacity starting at the end of September. In New York's case, the news is welcome considering just how poorly restaurants have performed despite relatively good news on the virus front. In San Francisco, indoor hair salons, barbershops, and gyms can reopen on September 14. 

The news out of San Francisco and New York is encouraging since these have been cities that have generally embraced strict lockdowns. 

At any rate, it is pretty clear that the stringency of lockdowns is easing and while physical constraints on activity aren't all that matter, they certainly still matter. 

Pessimists will look at the continued reopening and argue that a spike in cases is inevitable. Perhaps. Then again, while the pace of reopening appears to have picked up recently, the country has been reopening for weeks now, and cases continue to decline. 

We'll err on the side of continued growth momentum. For investors, this means rotating out of those names that benefit from people sitting at home all day long and into those sectors that require some proximity to people.

 Our guess is we'll see more folks at the movies in the months ahead and fewer streaming shows in their sweatpants. 

Read the original article on Business Insider


Read also

China’s ByteDance seeks $60 billion TikTok valuation in U.S. deal: Bloomberg News

Galaxy S21 would use the ISOCELL Vizion sensor, Samsung’s own LiDAR

Texas and Louisiana brace for ANOTHER hurricane as Tropical Storm Beta strengthens in Gulf of Mexico with 60mph winds



News, articles, comments, with a minute-by-minute update, now on Today24.pro




Today24.pro — latest news 24/7. You can add your news instantly now — here