Last week’s main event was the release of Q2 GDP data for the United States. In the April to June period, the US economy declined by 32.9% year-on-year (YoY). This is the worst quarterly economic performance for the world’s most important economy ever recorded. The full impact of the COVID-19 lockdown measures has had a massive impact on US economic output. Although a decline of this magnitude was expected (in fact the reported number was slightly better than the consensus forecast), the announcement was still met by a spike in market volatility and equity markets selling off.
US economic output falling by almost one-third is bad news, there is no way around it. But there were a couple of positive data points buried in the data release for us to hold on to. Personal income levels increased, thanks in part to government support. Personal savings levels also increased, with people stuck at home not able to spend their income. This means that the average US consumer is going into the third quarter of 2020 better off than they were going into the second quarter.
Higher incomes and more savings make for a stronger consumer, and we could see a strong rebound in the US economy driven by higher consumption. The ongoing spread of COVID-19 in many US states may have something to say about that, but at the very least, the US consumer is in a relatively better position today to drive a recovery in consumption. It’s still too early to know the timing and shape of recovery, we will discover that in the coming months, but at least we know the worst of the economic data is behind us and the recovery, whatever shape it comes in, is underway.
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