Jan 26, 2021

Real Time Economics: Consumers Are Flush With Cash

The Wall Street Journal

7-9 minutes

Percentage hedcut.
Real Time Economics

Good morning. Jeff Sparshott here with the latest on the economy. You can send questions, comments and suggestions by replying to this email.

Many U.S. consumers are starting 2021 flush with savings likely to help fuel the economic recovery this year. The latest federal Covid-19 aid package sent $600 checks to many households that also received relief money last year, while more affluent households have built up pools of cash by curbing their spending during the pandemic. Americans saved $1.4 trillion in the first three quarters of 2020, or about twice as much as in the same period of the prior year, according to analysis by Berenberg Economics. That amount is equivalent to nearly 10% of 2019 household spending. Berenberg's chief economist, Holger Schmieding, says once business restrictions are lifted and people feel it's safe to go out again, "there will be a lot of spending—my guess is the beaches will be crowded, the pubs will be crowded" and "by May and June it will be in full swing."

The Federal Reserve Bank of New York found that consumers socked away more than a third of the first stimulus checks. The survey also found that consumers expected to spend an even smaller share of future stimulus payments, and use a higher share to pay down debts, Harriet Torry reports.

­čÄž WSJ podcast: Harriet Torry on how saved-up stimulus checks could boost an economic recovery later this year. Listen here.

The International Monetary Fund releases its world economic outlook at 8 a.m. ET.

The S&P/Case Shiller 20-city home-price index for November is expected to increase 8.8% from a year earlier. (9 a.m. ET)

The Conference Board's consumer confidence index for January is expected to fall to 88 from 88.6 a month earlier. (10 a.m. ET)

The Richmond Fed's manufacturing survey for January is expected to tick down to 17 from 19 a month earlier. (10 a.m. ET)

The Federal Reserve starts it's two-day policy meeting.

China's industrial profit figures for December are out at 8:30 p.m. ET.

The World Economic Forum's virtual summit continues from Davos. Speakers include South African President Cyril Ramaphosa, German Chancellor Angela Merkel and French President Emmanuel Macron.


The Sun Rises in the East....

Chinese President Xi Jinping issued a veiled warning against the new Biden administration’s preparations to rally allies to challenge Beijing on a range of issues, urging multilateral coordination to tackle global challenges. “To build small circles or start a new Cold War, to reject, threaten or intimidate others, to willfully impose decoupling, supply disruption or sanctions, to create isolation or estrangement, will only push the world into division and even confrontation,” Mr. Xi told the World Economic Forum. The Chinese president said Beijing would continue to open its economy and honor its global commitments, but emphasized that each country had a right to blaze its own path, James T. Areddy reports.

The U.K.’s economy shrank more last year than any of the G-7, in what the Bank of England says will be the country’s biggest economic slump in more than 300 years. What went wrong? U.K. economic growth was weak going into the pandemic because of feeble business investment amid Brexit uncertainty. Then, it was hurt more by shutdowns because of its dependence on services for growth: Around 13% of its annual gross domestic product comes from spending on recreation and culture and in restaurants and hotels, a higher share than any other G-7 country, Jason Douglas and Andrew Barnett report.

Earlier this month, Prime Minister Boris Johnson announced another nationwide lockdown to fight a new, more-contagious variant of the coronavirus. That puts the U.K. economy on course to shrink again in the first quarter of the year, when businesses must also get to grips with new European trading arrangements.

Italian Prime Minister Giuseppe Conte is set to resign on Tuesday, as Europe’s underlying problems of economic stagnation and political fragmentation start to reassert themselves amid the gruelling pandemic. The fall of Italy’s government, in office for just 17 months, is a symptom of the continuing fissures in Italian and European politics. Established and insurgent parties are struggling over Europe’s future, stable majorities are often elusive and leaders are searching for ways to overcome long-term economic underperformance—nowhere more so than in Italy, Giovanni Legorano reports.

Janet Yellen will become the first woman to lead the U.S. Treasury Department after the Senate voted 84-15 on Monday evening to confirm her nomination. The 74-year-old economist, who has been at the forefront of policy-making for 25 years, will now play a key role advancing President Biden’s economic agenda, Kate Davidson reports.

The White House said the Treasury Department was resuming efforts to put escaped slave turned abolitionist Harriet Tubman on the $20 bill. Putting Tubman’s image on the currency had been undertaken by the Obama administration but the work wasn’t completed during former President Donald Trump’s tenure, Ken Thomas reports.

In 2016, the Obama Administration sought to replace President Andrew Jackson on the front of the redesigned $20 bill with Harriet Tubman. Photo: Getty (Originally published April 20, 2016)

The auto industry’s quickening shift to electric cars is spurring investment in another emerging industry in the U.S.: manufacturing lithium-ion batteries. China currently dominates the market for producing electric-vehicle batteries. But as auto makers spend billions to build more plug-in models in the U.S., investors are increasing their bets on firms looking to expand the supply chain for batteries and related materials in North America—a region that has long relied on imports for such components. U.S. battery-making capacity is expected to increase sharply over the next decade, rising more than sixfold from roughly 60 gigawatt hours of annualized production last year to about 383 gigawatt hours in 2030, Ben Foldy and Rebecca Elliott report.

Give a kid a job, keep him out of trouble. "We find evidence that [New York City Summer Youth Employment Program] participation decreases arrests and convictions during the program summer, effects that are driven by the small fraction (3%) of SYEP youth who are at-risk, as defined by having been arrested before the start of the program. We conclude that an important benefit of SYEPs is the contemporaneous effect during the program summer and that the effect is concentrated among individuals with prior contact with the criminal justice system," Judd Kessler, Sarah Tahamont, Alexander Gelber and Adam Isen write in a working paper.

Real Time Economics offers a downloadable calendar with concise previews, forecasts and analysis of major U.S. data releases. To add to your calendar, please click here.

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