The High Savings Rate

blog-post-header-picture

Economic conditions such as economic stability and total income are important in determining the savings rate. Periods of high economic uncertainty tend to induce an increase in the savings rate. About 9% of the total $1.9 Trillion American Rescue Plan act will go to COVID relief, including a third round of stimulus checks. The third round of stimulus checks allows eligible families to receive $1,400 for up to 4 dependents. That means that a family of 4 can receive up to $5,600.

The IRS uses your tax filing status and the adjusted gross income (AGI) from your latest tax return to determine your stimulus payment amount. Because there is no legal mandate on how people spend their stimulus checks, it’s up to the receiver on how they choose to spend these funds. So how have people been spending their stimulus checks?  While some are paying off credit card or school debt, others, like Robinhood traders, are placing their money in the stock market. In fact, investors poured in a record $56.8 billion as the stimulus checks arrived. 

Diagnosing the Economy

Recently, the yield on 10 year treasuries has soared. In the beginning of the pandemic, the yield dropped as low as 0.52%; recently it has risen as high as 1.70%, essentially having tripled in a year’s time. That may not seem like a whole lot, but as interest rates go up we are seeing the dollar strengthen as well. The reason for that, primarily, is because of the perceived increasing strength of the US economy and the expectation of higher inflation. People may be equating and viewing the strength of the stock market with the strength of a thriving economy. 

Many people confuse the stock market as a great sign that the underlying economy is thriving. Think of the V shaped recovery. We’ve had a V shaped recovery in the stock market from the low of March, 2020, until March of 2021 when we experienced an all time high. However, in the underlying economy, the U.S. Department of Labor recently announced initial weekly jobless claims of 684,000 people. That weekly number has been over 700,000 for months and is in contradiction to what we are seeing in the stock market. 

Unemployment and GDP

Although there were 379,000 jobs created in February, 2021, a loss of 700,000 per week in that same month created 2.8 million jobs lost, making the net jobs lost  at  2.42 million. We have 4 million people on continuing jobless claims and 10 million still unemployed. As people drop out of the workforce (For example, someone who had a job, went on unemployment and has now maximized all of their benefits, or they’re no longer looking for work)….that person is dropped out of the unemployment count. Therefore, the U6 unemployment rate rather than the headline U3, is more indicative of what TRUE unemployment is. 

Another  way to gauge the health of the economy is to look at GDP, not just the US dollar, stock market, or jobs created data. Look at the value of all goods and services in terms of dollars. Remember, exports add to the GDP number while imports subtract from the GDP number. If the country is importing more than it’s exporting, that creates a trade deficit which would lower our GDP. In the case of a trade deficit, it can also mean that we are essentially exporting jobs internationally rather than manufacturing goods and providing services with American labor. 

Although the economy is opening back up and we do have increased demand in goods and, to a lesser extent services, it’s clearly not the same as it was before. COVID created disruptions in the economy that affected both supply and demand. So, what we’re seeing now is a sign of inflation as demand has gone up but supply hasn’t been able to keep up. The supply chains are very sick, with inventories being depleted as millions of Americans were laid off.

More to Come

The Federal Reserve has increased the money supply and we have a recipe of too many dollars chasing fewer goods and services. The essentials that families need on an everyday basis, such as gasoline, food, and energy have increased in price. Much of those increases are a direct result of higher commodity prices. Wheat, oil, gold, silver, soy beans, cattle, pork, lumber, etc. have continued to trend higher. When commodities increase, they eventually feed right into consumer price inflation.  

There are ways in which we can mitigate the effects of consumer price inflation through the investment into hard tangible assets. We will plan to go into more detail into what people are doing relative to hard tangible asset investing in a future blog. We appreciate everyone following our work and we have one goal in mind…that is to help everyone that we possibly can to navigate the challenges we are facing in today’s environment.

 Don Culpepper
Don Culpepper

Mr. G. Don Culpepper, Jr is the Founder, President & CEO of GDC Consulting, LLC. Founded in 2014, GDC Consulting, LLC provides executive advisement, operations, and management consulting to the Oil & Gas industry.

This post may contain affiliate links. If you use these links to buy something we may earn a small commission. You can read our full disclaimer here. Thanks.


NEWSLETTER SIGNUP

Get on the list!

Processing…
Success! You're on the list.

By clicking submit, you agree to share your email address with the site owner and Mailchimp to receive marketing, updates, and other emails from the site owner. Use the unsubscribe link in those emails to opt out at any time.


The Bridge to Renewables
There is a lot of discussion about getting rid of fossil fuels …
Position Sizing and Risk Management
At the end of the day, the only thing standing between your …
The Energy Transition
Since natural gas provides about one half of the carbon footprint of …
Why People Feel Like They Are Falling Financially Behind
People who own assets get richer or at least stay on the …
Stock & ETF Trading Signals