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This Dam is Going to Burst

Lately in the-stock-market-is-not-the-economy news, the Dow Jones Industrial Index has been breaching new highs. The S&P 500, too. Sure, the American vaccination effort is going better than expected, but the fact is that this economy is still missing 9 million jobs from when this pandemic started. So what gives?

Data from the US Bureau of Economic Analysis

I’ll show you what gives: US personal savings hit an absolutely BONKERS rate last year. It basically tripled where it had averaged for the two decades before it. Which means we have a lot of people who have been socking away cash. Whether that is from a collective realization that no one is immune to catastrophe and that every household needs an emergency fund (Haha! I wish), or (more likely) everyone’s inability to pay for and participate in experiences over the past year, we now have a nation saving much more money than it usually does.

My guess is that this isn’t a permanent change. Once a critical mass of citizens has been vaccinated and our health experts give us the all-clear to enjoy life in public, I have a very strong feeling we’re going to see those savings rates plummet. I wouldn’t be terribly surprised to see them go briefly negative as society goes overboard to reclaim lost time.

Data from Wallet Hub’s 2020 survey on credit card debt

Another indicator I am willing to bet we will see reverse itself is credit card debt. Americans paid off $82.9 billion from their credit cards last year. Again, I do not have the words to stress how utterly bananas that is. In the 10 years prior to 2020, US consumers added an average of $54.2 billion in credit card debt per year. And then 2020 comes along and in one year we cleared off almost twice what we normally add on. I just… WOW.

Again though, while I hope that this will lead to more responsible credit card usage, my gut tells me we will bounce right back to our prior (over)spending levels. Wallet Hub similarly estimates 2021 credit card debt will grow around $50 billion in 2021. Remember, friends: it’s real easy to lose track of how much you’re spending when it’s as simple as a card swipe (need help with your credit card usage? Schedule a chat with me here).

All this to say that market watchers are eagerly tracking this data, too. The stock market is a forward indicator. It tries to predict the future. Right now investors are betting that once businesses can safely open their doors all the way agin, there is going to be a tidal wave of money washing through. The pandemic has been holding cash back and this dam is going to burst.

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