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A V-shaped recovery is on the cards, but beware of some other risks - Substantive Research

16 April 2020

Substantive Research covers Longview Economics on their recent publication regarding the recent US stimulus package, and it's impact on household cashflows


That size and speed in recent stimulus packages announced by the Federal Reserve and the US government is paramount and is compellingly illustrated by Longview Economics recent work modelling of US household cashflows. According to Longview’s central case over the next 9 – 10 months (i.e. through to year end), household income is likely to drop by US$788bn (assuming a 15% unemployment peak), household spending (under lockdown) will fall by US$1.3 trillion while cash payments to households (whether via direct cheques or enhanced benefits) will equal ~US$480bn. Adding it all up, coming out of lockdown and into the summer months, households should have built up a cashflow war chest of around US$1 trillion. Longview say that assuming only 25%, or indeed 50%, of that spare cash is spent over the second half of 2020, then it becomes clear how the US policy makers’ stimulus approach, coupled with the strange nature of this economic shock caused by the lockdown, should then generate a V shaped US recovery. That said, Longview argue that the stimulus delivered at speed and in large quantity, is likely to generate other problems. In particular, they say, 12 months down the line, rising inflation is one of the key risks that is likely to materialise.

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