Think About This
INVESTMENT RESEARCH
In our recent note ‘ Valid Insurance ’ we highlighted the message from the bond market : that the Fed is active as a backstop buyer ; that Chairman Powell has unlimited firepower and is underwriting most US bonds . We highlighted that we saw Government spending and fiscal stimulus , as being additional components of this insurance , and that they are also paying out . Given the terse public wrangling going on between the Democratic House , the Republican Senate and President Trump , we want to explain how we think this policy pays out . We also want to remind everyone that if this payout is the result of a Blue Wave , a Democrat clean sweep at the election , that this is not quite the costless boon everyone now seems to believe .
Until recently the boost to personal income from transfer payments , from unemployment and other supplemental government distributions , has more than made up for the collapse in earned income . But now that these payments have ended personal income is suddenly significantly below trend . We think without these payments there is about a $ 100 billion a month shortfall in income compared to pre-Covid
US PERSONAL INCOME $ SAAR
21500 21000
($ billions )
20500 20000 19500 19000 18500 18000 17500 Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Ex CARES Act support ( Stimulus payments , UI supplements , PPP ) Total ( Forecast w / no additional legislated stimulus ) Pre-COVID trend
Sources : Bureau of Economic Analysis , MPP , Deltec
US PERSONAL SAVINGS AS % OF DISPOSABLE INCOME
35 % 30 % 25 % 20 % 15 % 10 % 5 %
0 % 2015 2016 2017 2018 2019 2020
US Personal Savings as % Disposable Income Sources : Bloomberg , Deltec www . deltecbank . com Deltec Bank & Trust Limited