Unnecessary Fiscal Stimulus
February 22, 2021
Last week’s report on January retail sales came in +5.3% (+6% for the control group) vs. consensus for +1%. This has economists taking Q1 consumption growth to levels around +5%. Most of this increase follows the $900B fiscal stimulus passed in December. January real consumption (due Friday) was probably +1.5% with a >10% increase to income and a savings rate probably above +20%. That means there’s an enormous amount of fuel in the tank going forward. The December fiscal stimulus package was intended to offset second wave coronavirus effects. To be clear, there were no second wave effects in the goods sector with Q1 global capex growth now tracking +10%. January US manufacturing PMI reached a record high of 59.7, while January services ISM of 58.7 is already approaching record levels from 2018. Meanwhile, political developments in Washington have expectations looking for an additional $1.7T in fiscal stimulus. US consumer balance sheets (debt service ratios) are in the best shape in more than 40 years. Consumer loan delinquencies from charge-offs went lower last summer. In the history of this country, we’ve never seen household disposable income go up during a recession. Why is fiscal stimulus now being forced down the throat of the US economy? We know what the technique does to an otherwise healthy goose.