As the weather gets warmer and more people are either vaccinated or are immune from already having COVID 19, economic prospects are becoming brighter. It is possible that we are on the cusp of an economic surge in the coming months.
The reason for this is the US consumer. As you can see on the chart below, consumer spending is 67.6% of the overall US economy.
So what is the state of the US consumer? Are they in a position to go on a spending spree fueling higher economic growth? I believe the answer to that is “Yes”.
The recent COVID stimulus payments put more money in lower wage earner’s pockets, who historically spend more of their earnings than larger wage earners. Also, consider the overall state of the US consumer in the chart below.
Yes, you can see in the orange line that their debt has never been higher, and many people focus on that. However, the blue line, which is what percent of income is spent on debt payments, is more important. Looking back to 1980 in this chart, you can see that consumers are spending only a small percentage of their income on debt service. What this means for the economy is that consumers, who are primed and ready to spend money on what they have been deprived of the last 13 months, can afford to spend and money on these services as these businesses continue to open up in the coming months.
This is good news for the economy and could very well be also bullish for the stock market.