By Lauren Saidel-Baker on Apr 16, 2020 11:09:59 AM
The coming weeks and months will bring new data regarding the magnitude of ongoing economic decline, and the majority of it will likely be quite negative. While reasons for outright optimism are few and far between, it will be important to keep these negative news releases in context. Overreacting to alarming data points and sensationalized stories can lead you to lock in your losses and should be avoided.
Several factors on the consumer side of the economy illustrate that as bad as the current situation feels, it could certainly be worse. COVID-19 struck the US at a time when unemployment and debt levels were low and wages were rising. If a shutdown of this scale had hit the US in 2006 for example, when consumer debt imbalances were much greater, the impact would have been much more severe.
- Roughly two thirds of Gross Domestic Product is driven by consumer spending, which had been rising. While there is more pain to come on the consumer side, higher personal savings will help soften the blow. The US Savings Rate averaged 7.9% in 2019, compared to just 3.9% in 2006.
No one ever wishes for rough waters, but it is fortuitous that this storm came at a time when the US consumer was in a relatively strong position to weather it. As bad as the current situation is, I am taking some comfort in the fact that consumer health could mitigate the worst pain. Be thankful for small mercies.