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Is a “growth bomb” on the way?
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“ ‘More than $2.5 trillion of sidelined savings is the fuel for a growth bomb waiting to explode’ ”
That’s Leuthold Group CIO Jim Paulsen waxing bullish in a recent note about the growth prospects for a U.S. economy coming off a relatively robust quarter that saw gross domestic product soar at a record 33.1% annual rate. And, as he sees it, the economy’s just getting warmed up.
“Additional fuel isn’t needed,” Paulsen wrote. “The fuse just needs to be lit.”
Of course, the latest growth spurt followed on the heels of a record contraction in the second quarter as the pandemic hit the country. Even after the third-quarter bounce back, the economy is still 3.5% smaller now than it was at the end of 2019.
That could all change in a hurry, in Paulsen’s view. Pent-up demand and an increase in savings will provide that fuel for the next leg up, he predicted, adding that an increase in consumer confidence is what will ultimately trigger the growth spurt.
In an email to Bloomberg News, Paulsen said that the coronavirus relief measures will have a “lagged impact” in 2021, and that COVID-19 vaccines and/or treatments will help turn the tide.
His growth estimates for the current quarter and the following four are 7%, 5%, 8%, 5% and 5% — all of those are notably higher than economists surveyed by Bloomberg are forecasting.
And when consumers eventually jump in with open pocketbooks to meet those goals, Paulsen said factories will have to ramp up production to keep up with demand. “Relative to the level of economic activity, U.S. inventories are the LEANEST EVER!” he told Bloomberg.
Meanwhile, the stock market on Wednesday reflected a sense of bullishness among investors, despite the clouds that still hang over the election. At last check, the Dow Jones Industrial Average DJIA, +1.33% was up almost 700 points, while both the tech-heavy Nasdaq Composite COMP, +3.85% and S&P 500 SPX, +2.20% were firmly in the green.
