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Consumers & Disposable Income

March 19, 2021

Repeated stimulus packages have helped to boost consumers’ disposable income – what does this mean for the economy? Catch our newest TrendsTalk episode with ITR CEO and Chief Economist Brian Beaulieu to learn more.



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Transcript by Rev

Hi. I'm Brian Beaulieu, CEO and Chief Economist for ITR Economics, and thanks for joining us for this edition of TrendsTalk. Today, I want to talk about how the consumer is faring, particularly by looking at their disposable personal income, that's their after tax income, in light of the pending 1.9 trillion additional stimulus that the current administration and Congress are talking about. We have the data monthly and it shows the second checks that went out, and disposable, personal income remains amazingly high. You could see that the boost, every time those checks go out, the money sores, and with it, so does savings. It's amazing, people can't spend this much money fast enough. I know that as ridiculous as that is or it may sound, so much of it is getting translated into savings. And we're looking at well over a trillion and a half dollars in excess savings, excess being above and beyond what's normal, even right before COVID, what was normal.

People have a lot of money. That doesn't mean everybody has a lot of money, though. There are obviously still people unemployed that were in the restaurant, the travel or lodging, any number of sectors. There are renters who are feeling stress, so it's very normal and right to think about them. But we have to separate that when we're talking to you about where the overall economy is going, because unless those 4 million currently unemployed people because of COVID are your customers, they're not what's driving the bus. Unless those renters who are feeling the stress are your customers, they're not driving this economy. The overall economy is so much bigger than that. The overall economy is flush with cash, to the point where retail sales, latest data goes through February so you look at the last three months worth of data so that'd be December of last year, January and February this year, up 4.7% over the same three months one year ago.

Think about it. Not only have we recovered from the COVID, but we're now running above where we were pre COVID. There's been a lot of stimulus, there's been a lot of levers pulled to make that happen, and that's going to have consequences down the road, we all know that. But the point is the consumer has money, the consumer is spending money. And again, unless you're targeting or your customer base is that relatively small minority of people that are still feeling economic distress, you should be planning on the economy moving forward, even without this additional 1.9 trillion stimulus. This thing is likely going to continue to develop momentum on the way up, this thing, being the economy.

Penn State recently did a study on the Biden stimulus, and they're anticipating that it'll have a little bit of a kick additive and impact on the economy in 2021, but because it's the third round, the bulk of the input, the bulk of the, hitting that accelerator is spent. And in fact, they think it's going to actually be a drag on GDP in 2022 because of higher interest rates and expenses, et cetera. I'm not sure about their reasoning, but you know from watching our forecast that we have GDP growing through 2022, but at a slower rate, and they maybe have identified a particular reason why. We're watching the leading indicators.

In Canada, and it's the first one we've really seen where there's a statistically significant reversal, and in Canada's leading indicator, 1/12 rate of change. And that's telling us that, yep, there's going to be some decelerating growth going on in 2022, but the operative word is growth. We remain on track for growth in 21, 22 and 23. The stats bear it out. Even the seasonal decline that we see so far in retail sales. And look at that, if we get our ITR Trends Report, and if you have it on demand, just pull it up on your phone, and you'll see the seasonality, the climb in that three month move in total, it's normal. In fact, it's milder slightly, it's three tenths of a percentage point milder than average based on the last 10 years.

And you'll see that that 3MMT has just gotten back into line with where the mind's eye says it should have been before all this COVID stuff happened. Don't fear the future. Not when the consumer has money, not when interest rates are going to be staying low. Don't worry about future inflation, it's not on your doorstep and there's nothing you can do about it anyways. We'll talk more about that as we get closer to it.

The inflation that we are concerned about right now at ITR Economics is what's going on at raw material costs for our manufacturing clients and builders. That matters. That's a big deal. That's a different topic. Expect more of that inflation at that level however, because the consumer is going to keep on consuming.

Thanks for listening to this edition of TrendsTalk. Don't forget, if you want to see these trends right at your fingertips, you can always get hold of our ITR app, right off the App Store. Brian Beaulieu, signing off.


Since 1948, we have provided business leaders with economic information, insight, analysis, and strategy. ITR Economics is the oldest privately held, continuously operating economic research and consulting firm in the US. With a knowledge base that spans six decades, we have an uncommon understanding of long-term economic trends as well as best practices ahead of changing market conditions. Our reputation is built on accurate, independent, and objective analysis.