Stimulus Update: the Anniversary of the Us Stimulus Program

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Customers are commemorating last year’s hefty stimulus payouts, causing consumer companies in the United States to enter a tense sales period. Investor apprehension is warranted, but it must be handled with caution. Last year, just a tiny number of consumer groups reaped significant rewards. Best Buy should be avoided at all costs (BBY). McDonald’s is a haven (MCD). Above all, don’t be too pessimistic about the US consumer.

Takeaways to remember:

1. Biden’s $1.9 trillion COVID relief program, which ran from January to March 2021, resulted in an average cash infusion of $4,500 per household.

2. Stimulus money was spent on high-ticket items including appliances, electronics, and jewelry. Apparel, groceries, and quick-service restaurants were unaffected by the stimulus.

3. Highlight the contrasting stimulus impacts of Best Buy (BBY) and McDonald’s (MCD) and the implications for anniversary stimulus in the coming months.

4. Don’t be overly pessimistic. Despite the elimination of pandemic stimulus payments, US family income is expected to climb in 2022. The negative effects of lapping stimulation will be temporary.

Before we get started, it’s a legitimate question to ask why we’re talking about the US Consumer. Because that’s what we do, is the answer. Great Ocean Road Advisors (GORA) is a New York-based Australian-led fund that invests exclusively in US consumer equities. We do this because we believe the US Consumer sector is ripe for alpha: it has a wide range of companies and categories, significant volatility, and, most crucially, strong idiosyncratic share price returns. We have a great affection for the companies and their management teams because it is the only area in which we have ever invested. We hope you enjoy it, and we look forward to being a resource for you as we share our perspectives on the American consumer via an Australian lens from here in the United States.

Stimulus Update the Anniversary of the Us Stimulus Program (1)
Stimulus Update: the Anniversary of the Us Stimulus Program

President Biden’s historic stimulus package for 2021

The American Rescue Plan, a record $1.9 trillion stimulus program for US households, was one of President Biden’s first acts after taking office. Between January and March 2021, the package resulted in a financial injection of roughly $4,500 per family. Biden’s stimulus package was even bigger than Trump’s Paycheck Protection Program, which was implemented right after the pandemic broke out and left more than 20 million Americans jobless. Trump’s Paycheck Protection acted as a natural stabilizer, compensating for lost wages caused by the unemployment surge. Biden’s stimulus, on the other hand, came over a year later, at a time when the economy was already recovering naturally.

The outsized effect of the two programs is evident in the graph below. A nearly doubling of social security benefits per household captures both. The impact of Child Tax Credits, which have subsequently been withdrawn, is shown as residual above-normal social security payments at the end of 2021.

Stimulus Update: the Anniversary of the Us Stimulus Program
Stimulus Update: the Anniversary of the Us Stimulus Program

Only a few types of people benefit.

Money received rapidly in the United States is promptly spent. Most bank accounts have a balance of $5,000. As a result, stimulus payments effectively doubled such amounts. The nature of significant cash inflows to households, on the other hand, supports big-ticket purchases. Appliances, electronics, and jewelry, among other highly discretionary durable products, witnessed a quick and outsized increase.

Nondurable goods and services spending is significantly more influenced by underlying economic conditions. These areas of consumer spending had a limited response to Biden’s stimulus, but have since experienced accelerated increases due to sustainable demand factors such as income growth, wealth appreciation, and inflation, as shown in the chart below.

Stimulus Update: the Anniversary of the Us Stimulus Program
Stimulus Update: the Anniversary of the Us Stimulus Program

As we approach 2022, investors are aware of the approaching anniversary of stimulus payments, but they must be cautious not to generalize this anxiety to all companies.

Best Buy (BBY) should be avoided, while McDonald’s should be avoided (MCD)

BBY and MCD are large-cap consumer durables and consumer services bellwethers, respectively. We compare sales per location to pre-pandemic levels to see if there are any stimulus effects. As the stimulus effects fade, BBY’s sales show a substantial boost around the time of Biden’s stimulus payments, followed by a progressive fading in sales productivity relative to 2019. McD’s sales show no influence from the stimulus, but they have maintained their gains as underlying US consumer income continues to expand at its fastest pace in a generation.

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Surprisingly, consensus projections for BBY do not appear to account for the stimulus’s lapping effect. As a result, we are wary about BBY and a few other durable goods merchants. The consensus projections from MCD look to be achievable.

Stimulus Update: the Anniversary of the Us Stimulus Program
Stimulus Update: the Anniversary of the Us Stimulus Program
Stimulus Update: the Anniversary of the Us Stimulus Program
Stimulus Update: the Anniversary of the Us Stimulus Program

Even with gas inflation, don’t get too pessimistic.

The anniversary of stimulus payments, as well as any negative consequences on consumer company growth, will be one-time events. Slowdowns or sales shortfalls will have little impact on the inherent value of US consumer companies in the long run.

Read More:- Soon, There Will Be Another Local Stimulus | Latest Update!

Looking ahead, market-driven variables such as wages and corporate income are quickly increasing household income in the United States. Market incomes account for a far larger proportion of total income than social security payments, so increases in these goods can help balance any reductions in stimulus payments, as well as any effects from rising energy prices, which account for less than 5% of total family spending.

Stimulus Update: the Anniversary of the Us Stimulus Program
Stimulus Update: the Anniversary of the Us Stimulus Program

Consumer spending is expected to rise as well. The American consumer is one of the most tenacious clients a company can have.

Read More:- Stimulus Update: the Anniversary of the Us Stimulus Program

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