The writer, Joe Zidle, is a Managing Director and the Chief Investment Strategist in Blackstone's Private Wealth Solutions group.
From Blackstone, May 22:
....Joblessness and "the paradox of thrift" The tepid recovery will largely be a function of elevated joblessness, in our view. In a services-based economy, one person's spending is another's income. Coming out of recessions, consumers normally pay down debt and increase savings. With the consumer comprising around 70% of the US economy, an increase in savings has a negative effect on growth; it's a concept known as "the paradox of thrift." US household personal income peaked at $16.5 trillion in 2019. Based on 2019 levels, a 1% increase in savings would reduce GDP by approximately 80bps on an annualized basis, all else equal. The same analysis would result in a 75bps reduction in GDP growth in the Eurozone. Higher savings means a slower return to full employment. Over 87% of job losses were reported as temporary in April.(4) The downside risk is that a higher proportion of these layoffs become permanent due to consumer deleveraging. The result would be another so-called jobless recovery, such as the one following the Global Financial Crisis (GFC). Figure 2 shows that after the GFC, it took 76 months for the number of jobs to surpass the prior peak, compared to an average of 27 months for all other recessions since 1931.(5) Based on historical layoff and recall data, some researchers estimate 40% of job losses described as temporary today could become permanent.(6)........MORE