American households seem to be net beneficiaries of pandemic: Greed and Fear

New Delhi/Hong Kong, April 9 (SocialNews.XYZ) US households seem to be net financial beneficiaries of the Covid-19 pandemic, as per Christopher Wood of Jefferies Group.

In his latest 'Greed and Fear' financial markets commentary, Wood says that US households had, prior to the latest Covid stimulus, lost $530 billion in income and received $1.35 trillion in transfers, based on data from the Bureau of Economic Analysis.

This is measured by comparing the average income and transfers over the 12 months to February 2021 with the pre-Covid level in February 2020.

Thus, compensation and other personal income, excluding transfer payments, averaged an annualised $16.84 trillion in the 12 months to February 2021, compared to $17.37 trillion in February 2020.

Wood says that as a consequence, US personal savings have increased by $1.75 trillion over the same period.

Meanwhile, Americans earning below $75,000 will now receive another $1,400 stimulus cheque (or couples earning up to $150,000 will receive $2,800), totalling an estimated $422 billion, as a consequence of the latest $1.9 trillion stimulus.

In fact, more than 130 million payments worth about $335 billion have already been disbursed as at the end of the last quarter, according to the Internal Revenue Service.

As a result, US households would have been sitting on excess savings of $2.2 trillion as at the end of the last quarter, Wood said.

The savings rate in America was already a very elevated 13.6 per cent of disposable income in February, averaging 17.7 per cent over the past 12 months.

Another way of looking at the same phenomenon is the surge in American household deposits, which rose by 22.9 per cent YoY to $14.1 trillion at the end of 4Q20.

"All of the above creates a dynamic where Greed and Fear's base case remains that much of this money will be spent, as the psychological relief coming out of the pandemic as the vaccine rollout proceeds, triggers massive pent-up demand," Wood said.

As many as 110 million Americans, or 33.1 per cent of the population, have now received at least one dose of the vaccine, with 64.4 million or 19.4 per cent of the population getting fully vaccinated.

This is, therefore, an entirely different situation than what prevailed after the global financial crisis when American households main asset, namely their house, collapsed in price. On this occasion, house prices, as discussed here last week, have been surging, Wood said.

If there is a risk to Greed and Fear's optimistic view, it is that American household savings appear to be very concentrated in the wealthier part of the population.

Using the annual data from the Bureau of Labor Statistics' Consumer Expenditure Survey, the savings rate, measured as the difference between average annual income after taxes and average annual expenditures as a percentage of income after taxes, was 30 per cent in 2019 for the highest income quintile of Americans, compared to a negative 134 per cent for the lowest income quintile.

Or, in other words, the worse off spend more money than they earn. Still those without savings, in Greed and Fear's view, are also likely to spend a lot of the money they will now receive, Wood said.

Source: IANS