The U.S. economy is expected to experience the strongest growth since 1984, according to a recent research report from Oxford Economics. It reported:
"A year ago, the U.S. economy plunged into the deepest and fastest economic contraction since WWII. This year, improving health conditions, expanding vaccine distribution, and generous fiscal stimulus will form a powerful cocktail that lifts real GDP growth to its fastest rate since the early 1980s."
The key driver behind this explosive growth will be U.S. households. The $1.9 trillion American Rescue Plan, which President Joe Biden will eventually sign, will place $1 trillion in the hands of lower-income families in the form of checks, unemployment benefits and tax credits.
These households have a high "marginal propensity to consume," meaning they will end up spending most of this money rather than saving it.
Meanwhile, higher-income households will continue spending their steady income streams and some of the $1.8 trillion excess savings accumulated during the pandemic.
All in all, Oxford Economics expects the cumulative amount of fiscal stimulus to rise from 18% of gross domestic product in 2020 to 25% in 2021, adding 7 million jobs in 2021 and bringing the unemployment rate down below 5% by year-end.
Lower unemployment, in turn, will set the economy on a virtuous path higher and sending income higher on a spending spiral, making a recovery sustainable.
As for inflation, they expect it to reach levels rarely experienced over the past decade, at close to 3%, but uncontrolled overheating isn't likely.
Still, the boom in consumer spending, which will lead the recovery, isn't expected to include the usual high-cycle items like home improvement gear. Instead, consumers will rush to spend on what they resisted during the Covid-19 recession and start dining out more and traveling, but they are also expected to cut down on home improvement projects.
And that could change the game on Wall Street. The resumption of dining out and traveling will be a boon for restaurants and traveling stocks, while the cutting down on home improvements will be a bust for home building and home improvement companies.
Read more here:
- How Target Mastered the Pandemic
- Best Buy Wants to Be More Like Amazon
- 5 Key Takeaways From Warren Buffett's 2021 Letter
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