Consumer spending dive deepens
U.S. consumer spending plunged by a record-shattering 13.6% in April as the viral pandemic shuttered businesses, forced millions of layoffs and sent the economy into a deep recession.
Last month’s spending decline was far worse than the revised 6.9% drop in March, which itself had set a record for the steepest one-month fall in records dating to 1959. Friday’s Commerce Department
figures reinforced evidence that the economy is gripped by the worst downturn in decades, with consumers unable or too anxious to spend much.
Even with employers cutting millions of jobs, though, incomes soared 10.5% in April, reflecting billions of dollars in government payments in the form of unemployment aid and stimulus checks. Wages and salaries, normally the key component of overall income, sank by an annualized $740 billion in April. By contrast, income in the form of government support jumped by an annualized $3 trillion. That form of income, though, will likely fade in coming months as certain government aid programs expire.
Friday’s report showed sharp declines in consumer spending across the board — from durable goods like cars to nondurable items such as clothing to services ranging from doctor visits to haircuts. Spending tumbled 17.3% for durable goods, 16.2% for nondurables and 12.2% for services.
“The economics of fear and sudden stops were apparent in April as fearful and locked-down households cut back on spending,” Gregory Daco, chief economist at Oxford Economics, said in a research note.
The depth of the spending drop is particularly damaging because consumer spending is the primary driver of the economy, accounting for about 70% of economic activity. Last month’s figure signaled that the April-June quarter will be especially grim, with the economy thought to be shrinking at an annual rate near 40%. That would be, by far, the worst quarterly contraction on record.
With spending plunging and incomes surging on the strength of government support payments, Americans’ personal savings rate hit a record high of 33% of aftertax income in April. Economists said this underscored how anxiety and uncertainty about the economy are making consumers reluctant to spend.
Daco suggested that “more frugal consumer behavior ... will dampen the recovery.”
“This is particularly true as the social benefits will gradually erode over time, leaving households more financially constrained,” he said.