US economy boom builds

Readers will know that we have a very bullish outlook for the economic recovery this year. Indeed, we see the US at Chinese-style growth rates for the next year before coming off. The reasons for this are:

  • An ongoing global inventory cycle in goods production that has American wholesalers and retailers short of stock.
  • A very strong property and stock market delivering huge gains to household wealth.
  • Recent falls in the US dollar.
  • Immense fiscal stimulus that has built a war chest of household savings and will move next towards direct public investment.
  • A successful vaccine rollout based around the best available (as opposed to Australia) unleashing all this potential energy.
  • And, a rare profits boom as the resulting topline growth lands upon pandemic cost-out.

Here are some new charts to help illustrate the point. Via Oxford, overall recovery is beginning to accelerate:

As science puts the virus to the sword:

In part, courtesy of the vaccine rollout:

Which is in the process of dramatically accelerating:

Notice that the US is not using much of the Astra Zeneca vaccine owing to the three alternatives being materially more effective:

This is one reason to see the lockdown-addicted Australian rebound underperforming versus the US this year.

David Llewellyn-Smith
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  1. Everything you said is wrong. For herd immunity you need 85% of the population vaccinated. That will take until July 22. That’s if it is not bitched. Also people need to trust vaccine. You do but most people don’t. American consumers make up 69% of GDP. The virus hit jobs and income. They are scarred. They did not spend their cheques. They saved and paid down debt. They will do same with Biden stimulus. As for wealth and income effect from booming markets in stock and real estate. Most Americans don’t participate in stocks. Mostly rich do. In real estate, it is zero-sum game. Housing doing well in suburbs and rural areas but poorly in cities because of virus. Residential construction only 3% of GDP. Won’t move needle. As for Biden stimulus, it will take years to have effect. Federal government allocates money but state and local governments spend. No “shovel ready” jobs. In addition, exports will not add to US growth as overseas markets are struggling as well and Asians are not buying US made goods. In conclusion, there are no key drivers for the rosy picture you outlined. Your mistake is overestimating wealth effect as well as effectiveness of Biden stimulus.

    • Even if the vaccine isn’t as effective as DLS supposes (I tend to think it won’t be) the US will still have a stonking year. Base effects and the confidence boost from the new administration will be enough to see to that

      • You are more deluded than DLS. 85% of America wont be vaccinated until July 2022. Middle of next year. Thats what you need for herd immunity. “Confidence boost from new administration” is a joke. Congress evenly divided. American consumers are not confident and are saving more and spending less. Hard reality not market fantasy.

      • Good point. Asians overproduce and don’t spend creating massive savings glut. This is deflationary. As for Taiwan, another good point. Geopolitics which irrational markets have forgotten about. USD positive.

  2. “An ongoing global inventory cycle in goods production” will only add to global excess supply. Stay-at-home Americans have already bought furniture and gym equipment. Demand for future goods has already been satiated. As for services. Sure, with a vaccine, tourism, restaurants will pick up but not at the same level as pre-pandemic.
    And why would American retailers stock up if there is no demand from virus-effected consumers? Your answer is stock and real estate bubble. Don’t forget stock markets are at historic highs so a 30 to 40% decline in the S&P 500 is not out of the question. So that argument will get blown out of the water,
    The more you read that piece, the sillier the arguments get. Poor analysis. It shows little or no understanding of the true condition of the American economy and politics. Especially consumers. What is worse, the thesis has already been tested and failed. Obama did the same thing and the result was lowest post-war growth since WW2.

    • So many statements of fact..

      Your argument method is like throwing a handful of gravel at a tin shed – you’ll get some hits but that doesn’t mean you have good aim.

      • And what are your arguments? You have none? or you just believe everything DLS says? Well, that means you are weak and have no opinion of your own? or just too lazy to do your own research? Which is it?

  3. Bond Yields Trends …

    What happened Monday … David Chaston … Interest Co NZ

    … extract …


    We don’t have today’s closing swap rates yet. If there are movements today, we will note them here later when we get the data. It is likely they will be rising, especially at the long end. Today the 90 day bank bill rate is down -1 bp at 0.27%. The Australian Govt ten year benchmark rate is 6 bps higher at 1.56%. The China Govt ten year bond is unchanged at 3.30%. But the New Zealand Govt ten year is up 13 bps today to 1.65%. That is well above where the earlier RBNZ fix was, at 1.59% ( 8 bps). The US Govt ten year is up 4 bps from this morning, pushing on up to 1.38%.

    Bond Selloff Prompts Stock Investors to Confront Rising Rates … Wall Street Journal

    Shares make guarded gains as bond yields, resources spike … Reuters