There is some speculation that because only a little more than half of the buildup in savings from the stimulus checks and enhanced unemployment benefits was spent through July, Q4 economic activity will continue to show recovery as the “savings” continues to be spent. Call this the “Excess Savings” Hypothesis.  Unfortunately, the incoming data makes this appear to be little more than “hope.”

The weekly state and PUA unemployment data continue to show a lull in the recovery, as Initial Claims (ICs) remain in the stratosphere, and the main reason that the “Excess Savings” Hypothesis appears to be a long-shot.

The Hypothesis

Ellen Zentner and her economics team at Morgan Stanley (MS) have quantified the buildup of savings and its partial drawdown in Q2 and Q3 (through July – see the chart). They hypothesize that a continuation of the drawdown

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