Shop till you drop.
What will power the U.S. out of this pandemic-induced funk and into the uplands of economic expansion, once enough people have been vaccinated? A bunch of saved money, ready to be deployed into consumer spending.
Sure, Americans have been spending online madly, while shopping malls withered. To be sure, malls have been on the downswing for some time, thanks to the likes of Amazon. Pre-virus, even teenagers didn’t want to hang out at the mall, the way their forebears did when young.
But once the epidemic all-clear is sounded, expect a lot of shopping, and not all of it online. In a recent study, McKinsey predicted a spate of what it called “revenge shopping.” In other words, the study said, shoppers will sweep “through sectors as pent-up demand is unleashed. That has been the experience of all previous economic downturns.” Businesses with “communal value,” namely eateries and entertainment venues, will benefit the most, the consulting firm contended.
It remains to be seen how fast the travel industry will bounce back. Leisure travelers are expected to be the first to return. Business ones, not so much, at least at first. But let’s face it: A Zoom meeting is not the same thing an in-person one, or as useful as casual conversations in the office hallway.
Mergers and acquisitions have been on the way up, although M&A buyers complain about not trekking to a potential acquisition and seeing how it actually runs. Are those machines functional, or just look good on that virtual tour?
Powering the optimistic view is the money behind the pent-up demand we’ll soon see unleashed. The savings rate, defined as the percent of personal income that’s salted away, shot up to 20% in January, according to the Bureau of Economic Analysis. That figure is the best showing since 1960. The closest we’ve come in those six decades was 1976’s 17.3%. (We’re not counting the brief spurt up to 33.7% last April, driven by panic and broadscale shutdowns.)
What’s more, we’ll benefit from the “wealth effect,” the secure feeling that ample assets are behind us, so we can feel comfortable about buying that boat or going on that expensive vacation.
Last year, new figures from Fidelity Investments show, Americans had the largest nest eggs on record, thanks to the bull market, automatic annual contribution increases and a willingness of the public to invest stray, and unused, income.
The average 401(k) balance rose 11% in the fourth quarter to $121,500, per Fidelity. The performance trailed major stock indexes, but it was plenty. Reason for the lag: Not all retirement accounts are invested in stocks.
People saved an average of 9.1% of their salaries, by Fidelity’s reckoning. said. Employer matches added another 4.4 percentage points to that. The resulting 13.5% rate is close to the 15% that financial advisors say is an ideal level to finance one’s retirement.
Other encouraging stats: 33% of 401(k) plan participants boosted their contribution level. The average IRA balance increased to $128,100 in the fourth quarter, up 11% since the previous period. Even Generation Z retirement savers (that’s the young group that follows millennials) last year pushed average 401(k) balances up, by 13.3% in the fourth quarter, to $5,800. Plus, the number of Gen Z IRAs almost tripled in 2020 to more than 114,000 accounts.
Certainly, we always can be thrown an economic curve ball. But these developments are grounds for optimism.
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