After months of being shut inside, Americans are eager to open their wallets again. Consumer spending rose 8.2% from April to May. In contrast, consumer spending fell 6.6% month to month in March, and 12.6% in April.
The spending bump occurred even as household incomes declined by 4.2% last month. In April, a combination of $1200 stimulus checks and additional $600 in unemployment benefits boosted incomes. The stimulus checks were a one time thing, though, and additional unemployment benefits are set to run out at the end of July. It will be interesting to see how consumer spending fares at that time, and here at Freight Broker Live, we’ll be sure to let you know what happens.
One other factor working against future consumer spending is a potential second surge of the coronavirus. Cases are rising in 33 states, according to a Wall Street Journal analysis this week. On Wednesday, a record number of new cases were diagnosed in the United States. If states begin to scale back again (as my home state already has), then consumer spending (along with everything else) will likely start to look a lot more like they did in April than in February.
Consumer spending accounts for roughly two-thirds of economic activity in the United States. The US economy turned around by several metrics in May (unemployment, durable goods orders, manufacturing), but it won’t be enough to correct a serious GDP slump in the second quarter. The second quarter ends on Tuesday, thankfully, and GDP predictions range from -20% growth to exceeding -40%. Regardless of what the number ends up being, analysts expect the second quarter of 2020 to be the worst since the Bureau of Economic Analysis began tracking it in 1948.
The economy fell into a recession in February, according to the group tasked with measuring business cycles. Since then, four organizations forecast economic damage into 2021 (information about that can be found here, here, and here). For now, economists predict that there will be a rebound in the second half of the year, but odds are that we won’t reach pre-pandemic levels of growth until the end of 2021.