A 'growth bomb' is brewing in the US with consumers sitting on $2.5 trillion in savings — and it's poised to give the economy a huge boost, one Wall Street chief strategist says

• The US economy could be set for a surge in growth as consumers start to spend the money they saved during the COVID-19 pandemic, according to The Leuthold Group.
• When the personal-savings rate has been this high in the past, economic growth has surged, according to historical data from Leuthold.
• "More than $2.5 trillion of sidelined savings is the fuel for a growth bomb waiting to explode," Leuthold said.

A $2.5 trillion cash pile hoarded by consumers may be all it takes to fuel the economic recovery from the COVID-19 pandemic, according to The Leuthold Group's chief investment strategist James Paulsen.

Consumers have increased their personal savings rate amid the pandemic as budgets were cut and spending out at places like restaurants and theaters declined significantly.

The savings rate surged to 35% as the economy went into a recession earlier this year, and now sits at 15%, which is still size percentage points above its historical average. Once consumers are convinced that the economy is on good footing and its safe to get out and spend, economic growth should soar.

"More than $2.5 trillion of sidelined savings is the fuel for a growth bomb waiting to explode," Paulsen said, citing historical data.

When the personal savings rate was above average while consumer sentiment was higher than its current level, average annualized GDP growth nearly doubled to 4.44%.

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And on top of the heightened savings rate among consumers, a lack of inventory for a wide range of consumer goods should necessitate "considerable job creation," according to Paulsen, as companies rush to replenish their supply of goods.

A surge in housing during the pandemic has led to a shortage of common consumer goods, and according to US manufacturing and trade inventories as a percent of nominal GDP, US inventories are the leanest ever, Paulsen highlighted.

Meanwhile, the economic recovery won't be entirely reliant on another round of fiscal stimulus, according to Paulsen.

"Additional fuel isn't needed," Paulsen said, referring to more stimulus. Instead, "the fuse just needs to be lit," referring to consumers beginning to spend their savings pile.

An increase in consumer sentiment from its pandemic lows is materializing, so perhaps that fuse will be lit soon.

"With a pool of excess idle fuel [savings], it has only taken a bit more confidence to produce a healthy advance in the economy," Paulsen concluded.

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