Consumer Spending Keeps Gaining
On Friday, the Commerce Department announced that consumer spending rose by 5.6% in June. This followed an 8.5% increase in May. Consumers boosted spending in restaurant dining, travel, apparel, and healthcare.
Even as spending rose, incomes fell slightly. Income dropped 1.1% in June after falling by 4.4% in May. This may seem counterintuitive at first glance, but it reflects the government’s role since the coronavirus shut down the U.S. economy. In April, most adults received $1,200 payments as part of the CARES Act. This was not repeated in subsequent months, hence the falling incomes.
The savings rate came in at 19.0%. This is incredibly high, and shows that Americans are pumping less money into the economy. It sat at 8.3% in February, then grew fourfold to 33.5% in April. It makes sense that when people are worried about their employment situation, not to mention the economy as a whole, they will reign in spending. However, consumption comprises nearly two-thirds of GDP, and when it stops, the economy more or less short circuits.
What direction consumption goes in in July is anybody’s guess right now. However, from the indicators that we do have, it does not look promising. People are getting laid off at an increasing rate. New unemployment claims rose for the past two weeks, after falling for nearly four months straight. What’s more, new claims have stayed elevated above one million for nineteen weeks in a row. 20.5 million jobs were wiped out in March and April, and according to data thus far, the economy has only managed to recover about one third of them.
