The US economy is growing in 2021.   Fast.   Faster than I thought possible, frankly, pre-Covid and pre-stimulus.   But that’s what happens when you strap a cruise missile engine to the roof of your car.  And light it up.   After that, things start happening fast.  

Welcome to this week’s Steak House Index update.

If you are new to my blog, or you need a refresher on the SHI10, or its objective and methodology, I suggest you open and read the original BLOG: https://www.steakhouseindex.com/move-over-big-mac-index-here-comes-the-steak-house-index/

Why You Should Care:   The US economy and US dollar are the bedrock of the world’s economy.  

But is the US economy expanding or contracting?

The short answer?   Expanding.   A lot. Forever more, COVID-19 will be mentioned concurrently with any discussion about 2020 GDP.   Collectively, the world’s annual GDP was about $85 trillion by the end of 2020.   But I am confident all 2021 GDP discussions will start with a nod to the  blowout  1st quarter GDP growth number, because our ‘current dollar’ GDP grew at the annual rate of 10.7%!   Annualized, America’s GDP blew past $22 trillion during the quarter, settling in at $22.0489 trillion.  The US, the euro zone, and China continue to generate about 70% of the global economic output.

The objective of this blog is singular.

It attempts to predict the direction of our GDP ahead of official economic releases. Historically, ‘personal consumption expenditures,’ or PCE, has been the largest component of US GDP growth — typically about 2/3 of all GDP growth.  In fact, the majority of all GDP increases (or declines) usually results from (increases or decreases in) consumer spending.  Consumer spending is clearly a critical financial metric.  In all likelihood, the most important financial metric. The Steak House Index focuses right here … on the “consumer spending” metric.  I intend the SHI10 is to be predictive, anticipating where the economy is going – not where it’s been.

Taking action:  Keep up with this weekly BLOG update.  Not only will we cover the SHI and SHI10, but we’ll explore related items of economic importance.

If the SHI10 index moves appreciably -– either showing massive improvement or significant declines –- indicating growing economic strength or a potential recession, we’ll discuss possible actions at that time.

The Blog:

The just-released GDP numbers are staggering.   In Q1, our economy grew by 6.4% on an annualized basis.  But this number has been adjusted downward for inflation.   The ‘raw’ number was much higher:   Current-dollar GDP increased 10.7%, or $554.2 billion, in the first quarter to a level of $22.05 trillion.  

Wow.  A greater-than 10% growth rate.   Absolutely staggering.  Digging a bit deeper, we see that consumer spending actually increased at a faster rate during the quarter — ‘personal consumption expendatures’ grew by 10.7%!   By the end of Q1, PCE increased to just over $15 trillion of the $22 trillion total annual GDP number — now over 68% of our total economic activity. 

Consumer spending has a rocket strapped to its back.    It’s fuel:  ‘Personal Income’ and its companion, ‘Personal Savings.’    The growth in these two data points is unprecedented:  Personal income increased $2.40 trillion in the first quarter, or 59% over the prior quarter.  Let me repeat:   Personal income increased by 59% in one quarter!

And personal savings?  Savings increased by 27.6% in March!   This second-largest-increase-ever is only eclipsed by the increase last April, the result of the first stimulus bill. 

The March surge in personal income is the largest ever recorded.   Ever.  US government records for personal income began in 1959 — over 60 years ago.    This $2.4 trillion personal income explosion is the largest in more than 60 years.   And, as a direct result, personal savings in March increased to about $6 trillion.   Let’s put this into perspective.   Pre-pandemic, way back in February of 2020, personal savings was about $1 trillion.   Today, savings weighs in at $6 trillion.   Staggering!

Consumers are flush with cash.   What will they do with it?   If history is any guide, they will do three things.   Pay off some debt, save/invest a smaller portion, and spend the rest.   The $3 trillion or so consumers are likely to spend during the next year or two could jolt ‘personal consumer spending’ by another $3 trillion, or 20%.    Once again, staggering. 

Should we discuss the implications vis-à-vis inflation?  Yes, but beyond this brief comment, we’ll save inflation for another day. 

The ‘PCE price index’ did spike last month.   It increased 3.5%. Not surprisingly.  However, excluding food and energy prices, the PCE price index increased by only 2.3%.   More on this topic later. 

Let’s move on to the SHI10 because I have even more staggering revelations to share!

This week, four of our ten SHI markets are fully booked.

That’s right.   There is  not even one  reservation to be had this Saturday here in the OC, and in Chicago, Atlanta and Philly.   Not at 5:45.   And not at 9:00 pm.  Not a single one.   Sure, Sunday is Mother’s Day.  That always spurs reservation demand.   But never before like this:

Reservations for pricey eateries in two of the cities hardest hit by the pandemic — San Francisco and New York — are more plentiful.  But “good” reservation slots, even in these markets, are showing high demand.  It’s likely that some portion of the $5 trillion in new savings will be spent this Saturday.  But even if everyone orders a Tomahawk ribeye, there won’t be much of an impact on savings.  🙂

Moving on to the trend analysis, we see that once again the SHI10 has set a new record: 

The 718 point spread is the highest ever recorded.    Once again, staggering. 

I need to find a new word.   I’ve worn-out this one.   I think I’ve also worn-out ‘unprecedented’ over the past year or so.  So I’ll leave you with this thought:   Our economy is on a tear.   We’re experiencing the fastest growth in many decades — rocket-fueled by the stimulus payments, personal income and personal savings.  In the coming year or two, America and Americans will fact plenty of obstacles, both known and new.  But it is unlikely anything will derail America’s rocket-fueled economic growth.  The rocket engine is lit. 

What could?   Well, the FED raising rates by 5%.   Or the Senate approving a 50% corporate tax rate.  Or China invading Japan.   Or Russia dropping a nuclear bomb on Paris.   Stuff like that could stop the expansion cold. 

But I think you’d agree these are all very unlikely at present.  For now, happy days are here again.  I suggest you put on your party hat and join the celebration.  Because the new ‘Roaring 20s’ has already begun!

<> Terry Liebman