The US economic recovery was approaching a dangerous fall from the rock last year. But government assistance came at the right time to prevent a catastrophe, possibly paving the way for a dynamic return.
Personal income rose a staggering 10% in January, the Commerce Department said on Friday. Pending costs also increased last month by a healthy 2.4%, which mainly contributed to the growth of purchases of goods.
The introduction of a slow but steady economy was the latest sign of a reversal.
However, the data also show the extent to which state aid stimulates the economy. Last month’s revenue growth was almost entirely attributed to $ 600 in government assistance checks and unemployment insurance payments approved in December. And as costs soared, purchases of services continued to decline as the epidemic continued to weigh heavily on the entertainment and hospitality industries, even with declining coronavirus cases.
“Technically, you can say we’re recovering,” said Diane Swank, chief economist at Grant Thornton. “But the patterns of ‘income’ and ‘expenditure’ show the fragility of recovery without the help of bridging these toxic waters.”
The fact that the economy continues to depend on government aid is more resonant as Democrats in Washington seek to save President Joe Biden $ 1.9 trillion in aid, which will provide $ 1,400 in inspections that could further boost consumer spending.
Although data on Friday showed that the recovery was still fragile, it provided new evidence that others were no longer in danger of reversing, a trend seen in recent retail and home order reports.
The yield on government bonds, the basis of mortgage rates and corporate loans, has risen sharply this month as investors forecast rapid growth. The yield on 10-year treasury stocks, which is below 1% for most of 2020, has risen to about 1.5% in recent days.
Promising data on Friday forced Morgan Stanley to raise its first-quarter economic growth forecast from 2% (8.1% year-on-year) to 1.8%. Before the congressional hearing about that were exactly where the January test results came from, many economists believed that GDP could shrink in the first quarter.
There is a potential drawback to strong, stimulating recovery. Some economists have warned in recent weeks that inflation could be a problem, which could push the Federal Reserve to cut its stimulus measures. The change in stance from the Fed is likely to be bad news for stocks, and trading on Wall Street is uneasy this week as investors react to sudden shifts in bond yields.
But Friday’s report did not show that inflation was spiraling out of control. Consumer prices rose 1.5% in January from a year earlier, well below the Fed’s target of 2%.
On Thursday, the chairman of the Federal Reserve Bank of New York John on S. Williams said he believes a recovery is possible without inflation concerns.
“Fiscal support, coupled with highly favorable financial conditions and sustained progress on vaccinations, are all grounds for optimism. The economy will grow strongly this year,” he said. “As our economy, the world economy, is still completely below full strength, I expect the core inflationary pressures to remain subdued for some time.”
January data from the Department of Commerce showed that while overall revenue grew by 10%, wages rose by only 0.7%. And the costs reflected the disruption of the epidemic to consumer behavior. Expenditures on goods increased by 5.8%, while expenditures on services increased by only 0.7%.
On Friday, there was a warning note from the University of Michigan’s February Consumer Mood Index, which was down from the previous month. The report says economic expectations have fallen, especially among households, to less than $ 75,000.
“The worst case scenario is coming to an end,” said Richard Curtin, chief economist at the lead in the study.
The new labor market picture, which is another important part of the recovery, will come next week when the Department of Labor publishes its monthly work report. In January, employers added just 49,000 jobs, unlikely to hurt the nearly 10 million jobs lost.
Still, many economists now predict a return that is stronger than ever, a view that was reinforced in the Commerce Department report.
Wells Fargo chief economist Jay Bryson says last year’s savings, combined with the impact of the epidemic on state aid and spending cuts, could push Americans to spend more in recent months.
“People were getting all this money, they had nowhere to spend it because the economy had stopped,” he said. “So what did they do?” They literally put it in the bank. “
A report by the Department of Commerce showed that households had $ 3.9 trillion in savings in January, up from $ 2.3 trillion in December and $ 1.4 trillion in February before the epidemic. In January, personal income growth was the largest since April, when the figure rose 12.4 percent to nearly $ 3 trillion in government remittances. It was mostly in the form of $ 1,200 checks that millions of households received from the federal government.
Those cash reserves will increase even more if Congress moves to another round of aid, as it now seems likely. But as the epidemic unfolds, Americans are likely to start spending again, turning the savings built into fueling the economy.
“We just think that there is a huge demand for services, which will be financed by those extra savings,” Bryson said.
Not all state aid is saved. Retail sales rose in January, indicating that some Americans are spending money. Part of that cost could be for basic necessities, as unemployed workers would fill up warehouses weeks later with little help. But some of them may also reflect the gradual reopening of the US economy, even as the epidemic continues. “We’ve learned to do that over the last year,” Bryson said.
The coming year can be sad. Consumer spending is gradually warming up in the spring and summer as a new stimulus cycle, a combination of reducing infections and distributing vaccines, puts more people and money into them, says Gregory Dako, chief economist at Oxford, USA.
“We know what limits consumer spending,” he said, “that is, the health crisis and, for some families, the means.” “And what the January report reveals is that if both of those factors are mitigated in terms of restrictions, consumers will spend, and then the recovery will be stronger.”