Washington: US Consumer spending rebounded a record 8.2 per cent in May as many states began lifting stay-at-home orders and businesses reopened, according to federal data released Friday.
The increased spending comes despite a 4.2 per cent drop in personal income, the Commerce Department reported Friday. Personal incomes soared 10.5 percent in April, thanks to $1,200 stimulus checks and other federal help.
Unless Congress approves more assistance, experts like MUFG economist Chris Rupkey expect personal incomes to drop even more: millions of Americans will lose $600 a week in supplemental unemployment benefits when the federal program expires at the end of July.
Once the federal funds dry up, it will pull the “rug out from under this fragile economic recovery, as there won’t be any money left to support unemployed workers and growth will downshift to a slower speed,” he said.
More job losses
“Massive job losses with no paychecks will hit consumer spending hard in the months to come, and once the public’s pent-up demand purchases following the lockdown are made, economic growth could simply peter out,” Rupkey said.
The spending surge is largest on record, stretching back to 1959, said Jeannine Aversa, a spokeswoman with the Bureau of Economic Analysis, and helped mitigate the 6.6 per cent drop recorded in March and the 12.6 per cent tumble in April, when the pandemic forced much of the economy into hibernation and set off a recession. There have been more than 47.3 million applications for unemployment benefits filed since March.
States began incrementally reopening their economies in May, which helped fuel the spending gains. Data show Americans doled out more on recreational goods and food services as they did more dining out and traveling.
Auto sales showed signs of recovery after crumbling in April, when many dealerships were shuttered, CNBC reported. New vehicle sales expected closed in on 1.1 million.
Big hit on retail
Retail remains one of the hardest-hit sectors by the pandemic - with J. Crew, Neiman Marcus, J.C. Penney and three other major retailers filing for bankruptcy since May - as they were forced to shut down brick and mortar locations to ride out the pandemic.
Meanwhile, public health concerns continue to weigh on the economy as coronavirus infections surged this week in several states, prompting pauses on reopenings and sending customers back home. Texas and Florida ordered bars to close and imposed new restrictions to mitigate a surge in cases.
On Friday, the United States set a record for new covid-19 cases, passing the 40,000 mark for the first time, according to tracking by The Washington Post. There have been 2.4 million confirmed cases, which the head of the U.S. Centers for Disease Control and Prevention estimated Thursday is likely far short of the actual number. By CDC Director Robert Redfield’s estimates, the number is probably closer to 24 million.