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The U.S. Consumer Is Bowed, Not Broken

Russ Koesterich, CFA profile picture
Russ Koesterich, CFA
3.53K Followers

Summary

  • While the labor market will take years to fully heal, households are demonstrating surprising resiliency.
  • Auto sales rebounded sharply in May and there are other signs of households emerging from their induced hibernation.
  • Here are three reasons why the U.S. consumer remains bowed but not broken.

Russ discusses why consumption has held up, and how the pandemic has accelerated long-term trends.

It is hard to imagine a more rapid, devastating and pervasive blow to U.S. households than the pandemic. Abruptly shutting most economic activity has led to a record high unemployment rate. In actuality, the numbers are even worse than the headline rate suggests given a record drop in labor force participation and rise in the number of furloughed employees.

But while the labor market will take years to fully heal, households are demonstrating surprising resiliency. Auto sales rebounded sharply in May and there are other signs of households emerging from their induced hibernation. Here are three reasons why the U.S. consumer remains bowed but not broken.

1. Stimulus is at least temporarily supporting income

After plunging in March, real personal income surged in April, up nearly 14% year-over-year, on the back of multiple stimulus packages. While this is temporary - transfer payments in April rose 97% versus a year-ago - fiscal stimulus is having the intended impact: cushioning the blow to households (see Chart 1).

2. Wealth is elevated, debt modest and servicing costs low

Unlike the prelude to the financial crisis, consumers entered the pandemic in solid shape. Household wealth stood at a record $118 billion at the end of 2019. While wealth clearly dropped in the first quarter, the rapidity of the equity market rebound has limited the damage. At the same time, consumer debt is low and falling. Personal debt is below 100% of disposable income, the lowest since the early 2000s. Not only are debt levels manageable, but given near zero interest rates, the cost of servicing debt is the lowest since at least 1980.

3. Housing looks resilient

Housing remains resilient, a critical support given that a family's home is typically

This article was written by

Russ Koesterich, CFA profile picture
3.53K Followers
Russ Koesterich, CFA, JD, Managing Director and portfolio manager for BlackRock’s Global Allocation Fund, is a member of the Global Allocation team within BlackRock's Multi-Asset Strategies Group. He serves as a member of BlackRock's Americas Executive Committee. Mr. Koesterich's service with the firm dates back to 2005, including his years with Barclays Global Investors (BGI), which merged with BlackRock in 2009. He joined the BlackRock Global Allocation team in 2016 as Head of Asset Allocation and was named a portfolio manager of the Fund in 2017. Previously, he was BlackRock's Global Chief Investment Strategist and Chairman of the Investment Committee for the Model Portfolio Solutions business, and formerly served as the Global Head of Investment Strategy for scientific active equities and as senior portfolio manager in the US Market Neutral Group. Prior to joining BGI, Mr. Koesterich was the Chief North American Strategist at State Street Bank and Trust. He began his investment career at Instinet Research Partners where he occupied several positions in research, including Director of Investment Strategy for both U.S. and European research, and Equity Analyst. He is a frequent contributor to financials news media and the author of two books, including his most recent "The Ten Trillion Dollar Gamble."Mr. Koesterich earned a BA in history from Brandeis University, a JD from Boston College and an MBA from Columbia University. He is a CFA Charterholder.

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Comments (3)

k
This article does not represent the real economy, many have a lot of debt.
m
@katmandu 100: The article is self serving!
Chris Valley profile picture
US household credit card debt has factually been paid down in an actual straight line down this year.

*People* are being fiscally responsible. *people* not necessarily governments.
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