BIDEN STIMULUS TO USHER IN A BOOM?

[23.03.2021] This month President Biden’s USD 1.9 tn stimulus package was passed by Congress. What is the outlook for the US economy for the remainder of 2021?

President Biden’s USD 1.9 tn fiscal stimulus plan follows hot on the heals of USD 900 bn package approved in December. The main features of the plan are: USD 1400 cash payments to ordinary Americans (USD 400 bn), extra payments to the unemployed (USD 246 bn), education and money to support school re-openings (USD 176 bn), extra money to support the Covid 19 response (USD 123 bn) and additional grants to state and local government (USD 350 bn).

Last year the US economy contracted by 3.5% as it was disrupted by the Corona virus crisis. One of the main by-products of this was that the personal savings rate surged from 7.5% in 2019 to 16% in 2020. This reflected not only an increase in precautionary savings (due to uncertainty about the future), but also an increase in involuntary savings (due to a lack of things to spend money on).

With the US vaccine roll-out progressing quickly (around 35% of adults have had a first dose) it is expected that the US economy will re-open during the Spring. For those still in permanent employment we would expect the March stimulus cheques to be spent as well as a fair proportion of the extra cash that was saved in 2020. This combined stimulus should be sufficient to usher in a mini boom for the rest of the year. Indeed, the US central bank, the Federal Reserve, is forecasting 6.5% growth in 2021. As a result, we expect the 2020 safe havens, Tech stocks and US Treasuries, to remain pressured and ‘bricks and mortar’ shares (e.g. the hospitality and travel sectors) to be well supported.

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This post was written by Robin