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Economic Insights

The fuel has been provided for a very powerful surge in U.S. consumer spending once the COVID-19 crisis abates.

In my previous column, A First Assessment of the U.S. Congressional Stimulus Bill, I examined the potential impact of the bill on the U.S. economy, with just a rudimentary idea of the bill’s contents.

Today, with more details at hand, I wish to state my conviction that the benefits accruing to individuals, households, and small- and medium-sized businesses will provide a strong boost to the U.S. economic recovery once the current storm is past.

Following are some of the statistics worth pondering:

For Individuals
If all the workers who filed for unemployment insurance in the latest week receive full regular benefits as well as the $600 temporary additional benefit granted in the stimulus package, they will, on average, be getting replacement income that is 11-12% higher than their regular average weekly earnings.

 

Table 1. Replacement Income Will Exceed Regular Average Weekly Earnings

Source: U.S. Congress. UI=unemployment insurance.

 

I would argue that this fully insulates potential consumer spending from the effects of the recession. While the $600 benefit only lasts for the next 13 weeks and state unemployment insurance systems may run short of funds and reduce benefits in the future, the support being delivered currently is extremely powerful and could be extended by additional federal budgetary allocations.

For Households
In addition, qualifying households will be receiving $1200 in benefits per adult and $500 per child for a total estimated transfer of $200 billion. For households that receive their regular weekly pay through direct deposit, these funds could be received in the next few weeks.

Other benefits for households include temporary deferral of tax liabilities and loan obligations with respect to mortgage, student loan, and consumer borrowing.

I believe this constitutes an extremely powerful set of fiscal measures. Even if a large portion of the benefits will very likely be set aside as precautionary savings in the short-run and people sheltering at home will inevitably cut their spending while doing so, I believe the fuel has been provided for a very powerful surge in consumer spending once the crisis abates.

For Small- to Mid-Sized Businesses
Moreover, the stimulus package allocates $350 billion for benefits to small- and medium-sized businesses. While these may not be drawn down very quickly, they will also help stimulate aggregate demand as the economy absorbs the blow from COVID-19 and starts to recover.

In my opinion, help is indeed at hand.

 

This article may contain assumptions that are “forward-looking statements,” which are based on certain assumptions of future events. Actual events are difficult to predict and may differ from those assumed. There can be no assurance that forward-looking statements will materialize or that actual returns or results will not be materially different from those described here.

The opinions in the preceding commentary are as of the date of publication and are subject to change. Additionally, the opinions may not represent the opinions of the firm as a whole. The document is not intended for use as forecast, research or investment advice concerning any particular investment or the markets in general, and it is not intended to be legal advice or tax advice. This document is prepared based on information Lord Abbett deems reliable; however, Lord Abbett does not warrant the accuracy and completeness of the information.

The information provided herein is not directed at any investor or category of investors and is provided solely as general information about our products and services and to otherwise provide general investment education. No information contained herein should be regarded as a suggestion to engage in or refrain from any investment-related course of action as Lord, Abbett & Co LLC (and its affiliates, “Lord Abbett”) is not undertaking to provide impartial investment advice, act as an impartial adviser, or give advice in a fiduciary capacity with respect to the materials presented herein. If you are an individual retirement investor, contact your financial advisor or other non-Lord Abbett fiduciary about whether any given investment idea, strategy, product, or service described herein may be appropriate for your circumstances.

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