$2 Trillion on top of 75.6% Capacity Utilisation

Macro Perspectives: Mon 1 Mar 2021

Another $2 trillion spending package is passed by the House, and moved on to the Senate, where it was passed (likely with the help of the Vice President), let's take a look at what the politicians are calling, the "suffering" economy.

Despite a high unemployment rate (which has improved dramatically), and forced business closures (in some, more than other, areas of the country) there has been incredibly aggressive aid disbursed along the way.

The Federal unemployment subsidy has, for lower wage earners, paid them more than they made while working (about 80% more than minimum wage) - putting pressure under wages being paid to those that are working. The private sector has had to increase wages to compete with what the government has (maybe unintentionally) set as a new living wage (via the unemployment subsidy).

Within all of this, keep in mind, the economy was never completely shut down - at the depths of the health and economic crisis, the economy was still running at 64% capacity (from 77% capacity, pre-crisis).

With that backdrop, the latest Atlanta Fed GDP model is now projecting an 8.8% annual rate of growth for the first quarter - three times faster than the pre-Pandemic Q4 2019 growth.

Personal income was up 10% in January (compared to December), thanks to stimulus checks from the $900 billion aid package in late December and the extended federal unemployment subsidy.

The personal savings rate was 20.5% in January - more than double pre-Pandemic levels, and more than double the average U.S. savings rate of the past sixty years.

Real disposable income is 13% higher in January, than it was in before the Pandemic.

These numbers are going to go one direction after this next $2 trillion package hits: UP. 

Sounds great, but as we've been discussing in my daily notes, this will all be accompanied by prices going UP, maybe a lot. In the early 70s, the last time we had a sharp spike inflation, OPEC blocked oil exports to the U.S. - sending oil prices up four fold in 1973, broader prices in the U.S. economy followed, spiking by double digits.