The Big Idea
A steady tailwind for consumer spending
This document is intended for institutional investors and is not subject to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors. This material does not constitute research.
Consumer spending roared back last year after the severe downturn during the lockdowns. Further strength in the first half of 2021 has brought the level of consumer outlays essentially back to where it would have been in the absence of the pandemic, even as some sectors of the economy are just getting back to normal. There should be much more to come, as households over the next few years steadily spend some of the immense savings built up during the pandemic.
Filling the income gap
Consumers lost a massive amount of income last March when Covid forced the economy to lock down, throwing close to 25 million people out of work. The Trump Administration and Congress responded with one of the most aggressive countercyclical fiscal policy initiatives ever taken with the CARES Act. In rough terms, the federal government attempted to replace the lost income with a massive round of rebate checks and beefed-up unemployment insurance as well as broadly expanding eligibility for benefits.
Personal income showed the impact. Personal income spiked with each of the three rounds of rebate checks (Exhibit 1). After March 2020, income was never lower than the trend in place before the pandemic. The area between the trend line and the actual personal income series corresponds to the excess in income throughout the period, most of which has been saved and now constitutes a roughly $3 trillion stockpile.
Exhibit 1: Personal income spiked above trend with each round of stimulus
Source: BEA, Amherst Pierpont Securities.
Overdoing it
The first round of rebate checks was arguably highly effective in replacing lost wages and salaries during the lockdowns. However, fiscal policy bogged down in the run-up to the election, as neither party wanted to hand the other a policy victory prior to the November vote. By the time that a second large Covid relief package passed in December, wage and salary income had nearly already returned to the pre-pandemic trend (Exhibit 2). The last-minute addition of a second round of rebate checks in that legislation was therefore arguably wholly unnecessary.
Exhibit 2: Wage and salary income sank with pandemic but rebounded to trend
Source: BEA, Amherst Pierpont Securities.
Of course, the December package proved to be a mere down payment. President Biden and Congress passed the largest Covid relief legislation yet in March, distributing more than $400 billion in rebate check and extending supplemental $300 weekly unemployment benefit checks from March into September. By the time this final relief legislation became law, wage and salary income had fully recovered to the pre-pandemic trend and the prevailing dynamic in the labor market had become overwhelming demand for workers unmatched by supply as individuals have taken their time returning to the labor force.
Before moving on, it is worth noting that wage and salary income has moved above the pre-pandemic trend even though payroll employment is still almost 7 million below the February 2020 level. This is a testament to the sharp increase in wages being paid by desperate employers who are scrambling to staff up after their demand recovered more quickly than originally expected, as well as longer average workweeks for the workers they do have. While the wage and salary income series is far more comprehensive than the payroll count, which does not include self-employed, gig workers and others, dividing wage and salary income by the number of people estimated to be on payrolls yields a very rough proxy of how much each worker earns. That measure was up a whopping 10% in May from the February 2020 level, or about an 8% annualized clip.
In addition, keep in mind that the economy is likely to fill most of those seven million lost payroll jobs over the balance of 2021 as workers return to the workforce. As a result, wage and salary income is likely to remain on a rapid uptrend for the foreseeable future, supporting household income even as the remainder of the federal relief in the March 2021 package—mainly supplemental and expanded unemployment benefits—winds down.
Consumer spending catching up
With large service industries essentially shut down or severely restricted, consumer spending sank sharply last spring and has recovered more slowly than income. Consumer spending runs in striking parallel to wage and salary income (Exhibit 3). This should come as no surprise since spending does usually track wage and salary income pretty closely. In any case, as with labor income, spending has roughly returned to its pre-pandemic trend.
Exhibit 3: Consumer spending also sank with pandemic and rebounded to trend
Source: BEA, Amherst Pierpont Securities
As with wage and salary income, consumer spending is likely to move well above that trend line later this year and into 2022, both because labor income should be growing sharply and because households, in addition to their stream of regular income, are sitting on a massive accumulation of liquid assets, having saved most of the federal payments distributed over the last 15 months. That savings is unlikely to be spent all at once, but it will be divvied out over the next several years, offering a stiff tailwind to the consumer for as far as the eye can see.
This material is intended only for institutional investors and does not carry all of the independence and disclosure standards of retail debt research reports. In the preparation of this material, the author may have consulted or otherwise discussed the matters referenced herein with one or more of SCM’s trading desks, any of which may have accumulated or otherwise taken a position, long or short, in any of the financial instruments discussed in or related to this material. Further, SCM may act as a market maker or principal dealer and may have proprietary interests that differ or conflict with the recipient hereof, in connection with any financial instrument discussed in or related to this material.
This message, including any attachments or links contained herein, is subject to important disclaimers, conditions, and disclosures regarding Electronic Communications, which you can find at https://portfolio-strategy.apsec.com/sancap-disclaimers-and-disclosures.
Important Disclaimers
Copyright © 2025 Santander US Capital Markets LLC and its affiliates (“SCM”). All rights reserved. SCM is a member of FINRA and SIPC. This material is intended for limited distribution to institutions only and is not publicly available. Any unauthorized use or disclosure is prohibited.
In making this material available, SCM (i) is not providing any advice to the recipient, including, without limitation, any advice as to investment, legal, accounting, tax and financial matters, (ii) is not acting as an advisor or fiduciary in respect of the recipient, (iii) is not making any predictions or projections and (iv) intends that any recipient to which SCM has provided this material is an “institutional investor” (as defined under applicable law and regulation, including FINRA Rule 4512 and that this material will not be disseminated, in whole or part, to any third party by the recipient.
The author of this material is an economist, desk strategist or trader. In the preparation of this material, the author may have consulted or otherwise discussed the matters referenced herein with one or more of SCM’s trading desks, any of which may have accumulated or otherwise taken a position, long or short, in any of the financial instruments discussed in or related to this material. Further, SCM or any of its affiliates may act as a market maker or principal dealer and may have proprietary interests that differ or conflict with the recipient hereof, in connection with any financial instrument discussed in or related to this material.
This material (i) has been prepared for information purposes only and does not constitute a solicitation or an offer to buy or sell any securities, related investments or other financial instruments, (ii) is neither research, a “research report” as commonly understood under the securities laws and regulations promulgated thereunder nor the product of a research department, (iii) or parts thereof may have been obtained from various sources, the reliability of which has not been verified and cannot be guaranteed by SCM, (iv) should not be reproduced or disclosed to any other person, without SCM’s prior consent and (v) is not intended for distribution in any jurisdiction in which its distribution would be prohibited.
In connection with this material, SCM (i) makes no representation or warranties as to the appropriateness or reliance for use in any transaction or as to the permissibility or legality of any financial instrument in any jurisdiction, (ii) believes the information in this material to be reliable, has not independently verified such information and makes no representation, express or implied, with regard to the accuracy or completeness of such information, (iii) accepts no responsibility or liability as to any reliance placed, or investment decision made, on the basis of such information by the recipient and (iv) does not undertake, and disclaims any duty to undertake, to update or to revise the information contained in this material.
Unless otherwise stated, the views, opinions, forecasts, valuations, or estimates contained in this material are those solely of the author, as of the date of publication of this material, and are subject to change without notice. The recipient of this material should make an independent evaluation of this information and make such other investigations as the recipient considers necessary (including obtaining independent financial advice), before transacting in any financial market or instrument discussed in or related to this material.
Important disclaimers for clients in the EU and UK
This publication has been prepared by Trading Desk Strategists within the Sales and Trading functions of Santander US Capital Markets LLC (“SanCap”), the US registered broker-dealer of Santander Corporate & Investment Banking. This communication is distributed in the EEA by Banco Santander S.A., a credit institution registered in Spain and authorised and regulated by the Bank of Spain and the CNMV. Any EEA recipient of this communication that would like to affect any transaction in any security or issuer discussed herein should do so with Banco Santander S.A. or any of its affiliates (together “Santander”). This communication has been distributed in the UK by Banco Santander, S.A.’s London branch, authorised by the Bank of Spain and subject to regulatory oversight on certain matters by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA).
The publication is intended for exclusive use for Professional Clients and Eligible Counterparties as defined by MiFID II and is not intended for use by retail customers or for any persons or entities in any jurisdictions or country where such distribution or use would be contrary to local law or regulation.
This material is not a product of Santander´s Research Team and does not constitute independent investment research. This is a marketing communication and may contain ¨investment recommendations¨ as defined by the Market Abuse Regulation 596/2014 ("MAR"). This publication has not been prepared in accordance with legal requirements designed to promote the independence of research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. The author, date and time of the production of this publication are as indicated herein.
This publication does not constitute investment advice and may not be relied upon to form an investment decision, nor should it be construed as any offer to sell or issue or invitation to purchase, acquire or subscribe for any instruments referred herein. The publication has been prepared in good faith and based on information Santander considers reliable as of the date of publication, but Santander does not guarantee or represent, express or implied, that such information is accurate or complete. All estimates, forecasts and opinions are current as at the date of this publication and are subject to change without notice. Unless otherwise indicated, Santander does not intend to update this publication. The views and commentary in this publication may not be objective or independent of the interests of the Trading and Sales functions of Santander, who may be active participants in the markets, investments or strategies referred to herein and/or may receive compensation from investment banking and non-investment banking services from entities mentioned herein. Santander may trade as principal, make a market or hold positions in instruments (or related derivatives) and/or hold financial interest in entities discussed herein. Santander may provide market commentary or trading strategies to other clients or engage in transactions which may differ from views expressed herein. Santander may have acted upon the contents of this publication prior to you having received it.
This publication is intended for the exclusive use of the recipient and must not be reproduced, redistributed or transmitted, in whole or in part, without Santander’s consent. The recipient agrees to keep confidential at all times information contained herein.
