Some very encouraging signs emerge from the battleground against the coronavirus pandemic. While the road to defeat the virus remains long and full of uncertainties, recent data allows for an optimistic view ahead.
Israel is the one country in the world that vaccinated over 40% of its population already. As such, the entire world is watching the results. As it turns out, yesterday it was revealed that only 20 persons out of some 128k that were vaccinated with the Pfizer/BioNTech jab got the virus. Effectively, it means 0.01% or so, much more effective than the 95% announced. For the world, it means the vaccines work, and already forecasters upgrade the economic output for the year.
Because the United States economy is the largest in the world, all eyes are on how quickly it may reopen its economy. For that, U.S. consumer spending is key, as retail sales or consumer sales is the engine of any working economy. Hence, we should focus on when or how fast the consumer spending comes back to prior COVID-19 levels?
Spending Should Increase While Health Situation Improves
Faced with uncertainty, households hoard money. Savings rates are known to increase during recessions, as household pessimism prevails. That was particularly true in 2020 as the COVID-19 pandemic unfolded.
But things are bound to change, should vaccines roll out follows the plan. It is estimated that U.S. families in the top 40% of earners have built significant cash buffers during the pandemic so far. Now with the prospects of reaching herd immunity faster than expected, much of these savings should find their way into the economy.
Coming back to herd immunity, here is the math. The U.S. reached approximately 1.25 million/day as vaccination rate, up significantly in the last week. As the chart above shows, the current pace exceeds even the most optimistic scenario laid down in December.
By early spring, at the current rate, approximately thirty percent of the population would have received the jab. Following the same calculation, we reach the 75% threshold needed for herd immunity.
Now, people act in anticipation. If we see the current rate remaining constant and more proof that the vaccines do work as expected, consumer spending will increase way before the 75% threshold. This should have massive implications for the largest economy in the world and positive spillovers for its economic partners.