Consumer Spending Fell a Record 13.6% in April
Date: Friday, May 29, 2020
Source: The Wall Street Journal
Personal income rose 10.5% on impact of federal-stimulus payments; signs emerge that purchases are slowly starting to pick up
Consumers spent significantly less and saved more as they weathered the coronavirus pandemic and related lockdowns in April, with recent signs suggesting damage from the crisis is starting to ease.
U.S. consumer spending, the U.S. economy’s main engine, fell by a record 13.6% in April, the steepest decline for records tracing back to 1959.
Personal income, which includes wages, interest and dividends, increased 10.5% in April, the Commerce Department reported Friday. The jump reflected a sharp rise in government payments through federal rescue programs, primarily one-time household stimulus payments of $1,200. Unemployment insurance payments also rose sharply in April, helping make up for some of the 8% decline in wages and salaries tied to job losses.
Weak April spending, which economists say could be the bottom, adds to the evidence that the U.S. economy is in for a long, slow recovery. But gradual May reopenings of state economies and government support of businesses and households have led to a recent easing of job losses and a slight uptick in spending.
“Some of the data suggests a stabilization,” said Kathy Bostjancic, chief U.S. financial economist at Oxford Economics. “It’s still overall a very tentative, slow recovery.”
Camelia Kuhnen, finance professor at UNC-Kenan Flagler Business School, said that workers in industries hard hit by the coronavirus, like retail and tourism, will remain uncertain about the economic outlook for a while, even with states reopening their economies.
“It’s going to probably lead these people to be very, very careful with spending their money,” Ms. Kuhnen said.
Americans’ expectations about the economy’s trajectory soured in May, according to a University of Michigan Survey released Friday. The Michigan survey’s consumer expectations index fell to 65.9, from 70.1 in April.
Concerns about the path of the economy was a factor behind a sharp rise in savings in April. The personal-saving rate, which is the difference between disposable income and spending, surged to 33% in April from 12.7% in March and 8.2% in February, the month before widespread shutdowns.
Tracy Miller, 46, of Eagle, Colo., was in the market for buying a new car this spring until the pandemic caused clients to cancel bookings for her catering services. She lost her primary source of income as a result.
“I definitely decided that big purchase was not going to happen until I have some revenue,” she said. Ms. Miller said she weathered the crisis by deferring mortgage payments until July. She is also drawing on unemployment benefits of about $800 a week through a federal program for gig-economy and self-employed workers.
“I’m just trying to stay afloat and not spend a lot,” she said.
In April, consumers pulled back on services, cutting spending on restaurants and hotels by half compared with April 2019. Health-care expenditures fell nearly 40% from a year ago.
The consumption crunch hit goods almost as hard. Spending on autos shrank more than 30% from April 2019, while furniture and appliance outlays fell by one-fifth. Americans shelled out half as much on clothes and shoes as they did in April 2019.
The Commerce Department report showed money from the transfer-payment program in the federal rescue package, which provided $1,200 to most adults and $500 per child, accounted for the bulk of gains in April personal income. The government had issued nearly 90 million “stimulus checks” by April 17, and an additional 40 million payments the following week.
Marshal Cohen, chief analyst at the NPD Group Inc., a market-information and advisory-services firm, said spending on discretionary items such as fashion, footwear, beauty and apparel—all of which had shrunk by more than half versus the previous year—began picking up around that time. Home improvement spending jumped then, too.
Still, the stimulus checks were one-time payments whose economic effect will fade.
Consumers spent almost half of their federal stimulus checks in the two weeks after receiving them before reverting to prior spending habits, according to a study by the Chicago Federal Reserve.
Expanded unemployment benefits, including $600 a week tacked on to the regular weekly benefit amount, will provide a temporary, but longer-lasting, impact than the stimulus payments.
“We’re seeing consumers spend again because they’re collecting ‘employment plus’—meaning unemployment [benefits] are more than what they were making,” Mr. Cohen said.
Spending on some goods and services weathered April unscathed. Financial services and insurance expenditures rose 3.3%, compared with the same month in 2019. Americans also spent slightly more on housing and utilities, as well as on groceries and other food and drinks bought for at-home consumption.
Spending on many services has recovered some since April, private-sector data show.
Restaurant sales bottomed out in mid-April, down by one-third from 2019, according to Earnest Research data, and have started to climb again. However, fast-food and establishments more suited to online sales have fared better than upscale eateries.
Slim Chickens, a Southern-style restaurant chain serving chicken tenders, wings and salads, experienced a sharp drop in year-over-year sales when dine-in services were forced to close in March.
The Fayetteville, Ark.-based company began ramping up the number of employees helping with drive-through and further invested in its online ordering site. That helped drive up sales significantly beginning in the second week of April, said Tom Gordon, chief executive of the restaurant.
“We were able to weather the storm, and get back on the right track,” he said.