Source: New York Fed Survey of Consumer Expectations (SCE). Notes: Round 1 results are based on 1,423 respondents to the June 2020 special SCE survey who reported receiving a stimulus check. Rounds 2 and 3 results are based on 1,062 and 1,007 respondents to the January and March 2021 Core SCE surveys, respectively, who received or expected to receive second- and third-round stimulus checks.
Perhaps, more interesting is that this isn’t a new phenomenon. As you can see below, after a massive buildup of debt in the lead up to the Global Financial Crisis, consumers have been de-levering consistently ever since, with a cumulative drop in household debt to GDP of approximately 20%.
United States household debt as % of GDP
Source: Bloomberg as of April 28, 2021.
Finally, with the precipitous drop in interest rates, household debt service costs as a percentage of disposable income have also fallen massively to lowest levels we have seen since the early 1980s.
To sum it up, there is no doubt that markets have rallied and that expectations are much higher today than they were over the past year. But equally important, the fundamental backdrop is incredibly healthy, we believe we are still in the early innings of this expansion and investors who stay the course will be rewarded.
