THE FUTURE OF THE ECONOMY
The portent: Savings are historically high, and the housing market is on fire.
The prediction: The 2021 economy could be an absolute juggernaut.
This year has featured the strangest economy ever. GDP has cratered, millions of people have lost their jobs, and small businesses have closed in large numbers. But total income has increased (thanks to government stimulus), the stock market is setting records, home-buying is on fire, and the national savings rate is at a 45-year high.
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The last two stats are particularly noteworthy. In almost every recession since the 1970s, national wealth has taken a beating and the housing market has stumbled —or collapsed, as it did in 2007 and 2008. But today, home prices are setting records across the country while households have lots of money to spend. The national personal-savings rate is an average that conceals a lot of underlying diversity; for example, upper-middle-class families might have invested the money they would have spent on a winter vacation, whereas many lower-income families get by from week to week on unemployment insurance.
But any way you look at it, the combination of a strong housing market and record-high savings is just about the most ideal starting point for a recovery you can hope for. Demand for new homes should stimulate a phalanx of real-estate-adjacent industries, including construction and furniture sales, while the beleaguered leisure and hospitality sector should expect record annual growth as Americans flock back to hotels, bars, and restaurants—provided those establishments can hold on until next year. Meanwhile low interest rates and a slew of family-forming Millennials should provide a strong tailwind to the recovery, as this cohort looks to buy new space for its growing families.