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Goldman Sachs expects consumer spending to 'rebound strongly' in 2021

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Yahoo Finance’s Brian Sozzi breaks down whether or not wealth effects can support consumer recovery amid pandemic.

Video Transcript

MYLES UDLAND: All right, welcome back to "Yahoo Finance Live" on this Friday morning. Stocks lower as we get the week's final trading session underway. But as we think about the shape of the recovery, how healthy things have been or have not been, Brian Sozzi, I know you're looking at a recent note coming out of Goldman Sachs on the health of the US consumer, a consumer that it sounds like might get an additional check in the mail sometime soon and a consumer that's in pretty good shape already.

BRIAN SOZZI: Yeah. This is an interesting note out of Goldman Sachs' really chief economist John Hatzius. He's noting equity prices are up 15% higher than pre-pandemic levels. That's good for people who invest in the stock market. That's good for their wealth.

He also notes housing prices are rising at the fastest pace in a decade. And you put those two together, and he has calculated that the household wealth to income ratio, which you see here, is at an all-time high of about 775%. Now, he's putting all these conclusions together. And he says, because of these rising gains in household wealth, consumer spending alone, just based on these two factors alone, could get above about 8/10 of a percent this year.

Take a step back. Now, Goldman Sachs, I think here, bottom line is trying to justify a very bullish call on consumer spending this year. They're looking for close to a 9% year over year increase in household consumption in 2021, in large part because of these factors.

But Myles and Julie, what remains to be seen-- it's great to have some people have all this wealth. But it was really dependent on the pace of the vaccination in the country because if that does not happen, if that does not quicken, people are still going to be contained in their homes. And they're not going to be out there spending at least all of this paper wealth.

JULIE HYMAN: The other thing, I think, that we should point out is that people haven't been spending the money they've been getting so far, at least not all of it, right? They've been saving. And yes, they're likely to spend more of it if they can get out and about and have things to spend it on. But I saw an interesting survey yesterday from Bloomberg that said that the stimulus checks are more likely to be saved than spent. So I do wonder how that dynamic will affect these kind of theses that say that people are just going to go out there, there's going to be this explosion of spending. And there well might once, again, people have places to go. But even when they do, I do wonder if people are going to be a little more cautious than they have been in the past.

MYLES UDLAND: Yeah. And it is worth noting against the backdrop of all this, Goldman has consistently been the most bullish shop on Wall Street in terms of their view for the economy into this year and I think beyond, looking at a number for growth closer to 6%, 7%, 8% rather than the 2%, 3%, 4% I think a lot of folks are still looking at. And it really does seem to hinge on this argument, Julie, of whether consumers are more aggressive than they have been or whether indeed their behavior looks a little bit more the way it did back in April and May of last year, when they certainly had plenty of cash but not only an unwillingness but an inability to spend that money. All right.