A 'growth bomb' is developing in the US with consumers sitting on $2.5 trillion in cost savings-- and it's poised to give the economy a substantial boost, one Wall Street chief strategist says thumbnail

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A $2.5 trillion money pile hoarded by consumers might be all it takes to fuel the economic healing from the COVID-19 pandemic, according to The Leuthold Group’s primary investment strategist James Paulsen.
Customers have actually increased their personal cost savings rate in the middle of the pandemic as budgets were cut and investing out at places like dining establishments and theaters declined considerably.
The savings rate rose to 35%as the economy entered into an economic crisis earlier this year, and now sits at 15%, which is still size portion points above its historic average. Once consumers are persuaded that the economy is on great footing and its safe to get out and spend, financial growth needs to soar.
” More than $2.5 trillion of sidelined savings is the fuel for a growth bomb waiting to blow up,” Paulsen said, citing historic data.
When the individual savings rate was above average while consumer sentiment was greater than its present level, typical annualized GDP development almost doubled to 4.44%.
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And on top of the increased cost savings rate among customers, a lack of stock for a vast array of consumer goods should require “considerable task production,” according to Paulsen, as companies rush to replenish their supply of items.
A rise in housing during the pandemic has led to a scarcity of typical consumer goods, and according to US manufacturing and trade inventories as a percent of nominal GDP, United States inventories are the leanest ever, Paulsen highlighted.
The economic healing won’t be entirely dependent on another round of fiscal stimulus, according to Paulsen.
” Extra fuel isn’t needed,” Paulsen said, describing more stimulus. Instead, “the fuse just needs to be lit,” referring to consumers starting to spend their savings stack.
An increase in customer 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 actually only taken a bit more confidence to produce a healthy advance in the economy,” Paulsen concluded.
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