COVID clearly remains a global public health threat and continues to spread in many countries. But in the U.S. – as with many other countries across the globe, consumers are spending again, and the American economy is awakening from its artificially induced slumber.
“We are seeing huge pent-up demand and are all likely to underestimate both its magnitude and duration,” says portfolio manager Chris Buchbinder.
“As we've seen in Israel, China and other countries, as you get the virus under control, new cases plummet and activity rises rapidly, so I expect the economic rebound we are seeing in the U.S. to ramp up dramatically.”
Thanks largely to rising consumer spending and trillions in government stimulus, U.S. gross domestic product rose an annualized 6.4% in the first three months of the year, and total U.S. economic output could return to pre-pandemic levels by the end of 2021, years ahead of earlier expectations.
In fact, the International Monetary Fund (IMF) expects 6.4% U.S. GDP growth for all of 2021 — more than double a January estimate of 3.1% after U.S. household income growth soared to a record 21.1% this March.
“The recovery always came down to whether there would be enough stimulus to sustain us through the shutdowns,” says Capital Group U.S. economist Darrell Spence. “And with the vaccine rollout compressing the time between stimulus and the functional end of COVID, we could see even stronger growth than the market expects today.”
Sitting on a cash stash
Indeed, many U.S. consumers — sitting on a cash stash and ready to spend it — have already begun to turbocharge the recovery. Aided by stimulus cheques and a recovering jobs market, personal savings rates soared to 21% of disposable income in the first quarter of 2021. And there are indications that consumers, many of them fully vaccinated, are planning to use some of their cash to take long-delayed holidays or simply get out of the house and go to dinner. Bookings for domestic air travel and reservations placed through online service OpenTable have rebounded strongly.
“Our memories are marked by experiences and connectedness with other human beings, so I think travel and dining out will come roaring back,” says Hilda Applbaum, a portfolio manager “But the market anticipated this. The question is, ‘Have any of these companies become even stronger because of COVID?’”
Many businesses in the travel and leisure industries did not take the pandemic pain standing still. Cruise lines like Royal Caribbean have established strict protocols to limit the spread of illness when sailing resumes. Companies like Hilton are buying more properties and streamlining operations. In food service, Darden, a multi-brand restaurant operator, adopted pickup service, online ordering and contactless payments.
“Some companies have used the crisis to innovate and improve,” Applbaum says. “I try to invest in those that are positioned to surpass the competition when the reopening picks up speed.”