The Delta variant and high prices cannot keep the American consumer

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U.S. consumers have been affected in recent weeks rising prices and re-virus. But thanks to strong fiscal stimulus and steady employment growth, that hasn’t stopped them from spending.

U.S. household consumption led to an annual increase in the country of 6.5 percent Gross domestic product growth in the second quarter, showing a healthy recovery in June, according to data released by the trade ministry late last week. The composition of consumption changed from goods to services, but the general desire of customers to use their cash was unquestionable.

“One of the reasons the economy has been so resilient after such a big shock is the tremendous ability and willingness of consumers to spend,” said Michelle Meyer, head of U.S. economics at Bank of America. “The overall fundamentals are still strong, and more engagement will happen in the fall when people return office and go back to school. “

So far, economists and officials are in no hurry to lower their forecasts for the U.S. economy based on the expansion of the Delta variant, although this has brought more risks to the outlook.

Jay Powell, chairman of the Federal Reserve, suggested at a news conference last week that there is now less relationship between the state of the pandemic and the economic picture than there was in the past and that individuals and businesses seemed more able to adapt.

“With successive waves of Covid over the past year and months, they have tended to have fewer and fewer economic implications from each wave,” Powell said. “We don’t have a strong sense of how this could work, so we’ll just keep a close eye on it.”

Aneta Markowska, chief financial economist at Jefferies, said “household finances were at their best in decades”, citing a strong income balance and a huge stockpile of accumulated savings, which she estimated at 2.4 trillion dollars, half of which is in cash and deposit checks.

Consumption of durable goods fell for the third month in a row, but the latest withdrawal was largely caused by a 7.7 percent drop in car sales, as scarcity and surprisingly high prices repelled buyers. Elsewhere, spending was strong – and the personal savings rate, which reached 26.9 percent in March, dropped to 9.4 percent.

“The last round of stimulants was above and beyond,” Markowska said. “We not only made up for the lost revenue due to the pandemic, but it more than replaced it.”

Business spending also recovered faster than expected, although it still lagged behind in spending growth, Sachin Mehra, Mastercard’s chief financial officer, said in an interview.

“What we see is that people increasingly feel the need to go out and go visit customers, go see their suppliers, engage with their business partners, and that manifests itself in terms of the way they make their advertising spend. ”

The trend was true for small businesses, midsize companies and large multinationals, which helped the payment group report a 36 percent jump in quarterly revenue last week.

So far, small businesses have been leading, according to Mastercard’s rival American Express. U.S. SME spending jumped to 73 percent of pre-pandemic levels in the last quarter, while corporate clients charged less than a quarter of what they spent on Amex cards in the same period in 2019.

“What’s interesting is that small businesses, even now, travel more than large ones,” said Jeff Campbell, chief financial officer, adding that the trend is unlikely to reverse by the end of the year.

“These are big companies where you don’t see any signs of life at the moment, and we’re not counting on anything.”

However, both companies are optimistic that corporate travel will return, especially when their employees start booking flights. Mastercard has already resumed personal meetings with clients, which Mehra expected to have an impact across the industry.

“The fear of leaking will emerge,” Mehra said.

So far, there is little evidence that higher inflation puts a big damper on consumption, either on a personal or business side. Although inflation expectations for next year have risen to 4.7 percent, according to a University of Michigan consumer sentiment survey, they are expected to return to 2.8 percent over a period of 5-10 years, signaling that most Americans do not believe in dangerous spiral and are quite incapable of the latest data.

“People recognize that prices are rising, but they have the ammunition to keep doing things,” said James Knightley, chief international economist at ING. “They may not be happy to spend $ 9 on beer, but they will because they haven’t done it in so long.”