Head of Global Economics
BofA Global Research
Not just a sugar high
For some time, markets have expected the reopening of the U.S. economy to lead to a sugar rush in consumer spending. Investors have become concerned that this could result in strong inflation, and are questioning how the Fed would manage policy to prevent the economy from overheating. In March, the Fed presented an improved economic assessment with a firm message that it would remain patient on rate hikes through 2023, closely observing the data to ensure the economic recovery is sustained.
The jump in consumer spending is now here as the one-two punch of the stimulus and reopening has set off a spending spree. We now expect over 11% month-over-month seasonally-adjusted growth in retail sales ex-autos: the Census Bureau will release the data on April 15th.
The debate has now shifted to the next stage. Investors are focused on what a ‘sustainable’ recovery looks like and BofA’s Head of U.S. Economics Research Michelle Meyer argues that it will very much depend on a positive response from corporate America.
The transition to a sustainable recovery can be illustrated by a positive feedback loop: consumer spending increases, boosting revenue for corporations, spurring greater hiring and investment, which then feeds back into the economy by underpinning consumer spending.
While further corporate hiring is critical, more fiscal stimulus also has the potential to drive the recovery. The Biden Administration is moving forward with two major provisions totaling $3tr in spending, with a focus on “physical” and “human” infrastructure. This additional fiscal support should continue to underpin growth and mitigate concerns about a fiscal “cliff” in the economy once the effect of already-passed fiscal packages wears off.
While our Economics team expects U.S. GDP growth to moderate over the course of the year, the trajectory should remain at more than double the trend growth rate.
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