You’ve seen all the scary charts showing unemployment skyrocketing during the COVID-19 lockdowns, but here’s a more cheerful one to balance things out:
Partly because there’s less to spend money on, and partly because people are scared to spend all their money, personal savings increased significantly in the first quarter. With the exception of a single quarter during the fiscal cliff standoff in 2012, this is the highest personal saving rate of the 21st century. And it will almost certainly rise even further next quarter.
There are plenty of reasons to be pessimistic about the economy rebounding when COVID-19 starts to fade away—the biggest being legitimate doubt about whether COVID-19 will fade away given the bumbling performance of the Trump administration—but this is the prime reason to be optimistic. If (a) the coronavirus rescue bills do their job and keep most people whole during the layoffs and lockdowns, and (b) the personal saving rate balloons, then there should be a huge spending binge later in the year. There’s every reason to think that this could give the economy a huge kickstart.
Of course, this will happen only if we get COVID-19 under control so people aren’t afraid to spend. Donald Trump seems to think he can just order the economy to recover, but he will quickly discover that he can’t unless he gets COVID-19 under control. As a president running for reelection, this should be enough incentive for him to do the right thing and put all his energy into locking down now and ramping up test capacity for later, but instead he’s doing just the opposite. It is a great puzzlement.