Consumer spending up 8.2%, partly erasing record plunge

Last month’s rebound followed drops in March and April

WASHINGTON — American consumers increased their spending by a record 8.2% in May, partly erasing huge plunges the previous two months, against the backdrop of an economy that’s likely shrinking by its steepest pace on record this quarter.

Last month’s rebound in consumer spending followed record spending drops of 6.6% in March and 12.6% in April, when the viral pandemic shuttered businesses, forced millions of layoffs and sent the economy into a recession. Since then, many businesses have reopened, drawing consumers back into shops and restaurants and restoring some lost jobs.

Friday’s Commerce Department report showed that Americans stepped up their spending in May despite a 4.2% decline in personal income, which had soared by 10.8% the previous month. Income had jumped in April on the strength of billions of dollars in support through government payments in the form of unemployment aid as well as one-time $1,200 stimulus checks. In May, those stimulus checks were no longer counted as income for most people.

Besides the unemployment aid states are providing to the 30 million jobless Americans, the federal government is providing $600 a week in additional benefits. The federal money has pumped nearly $20 billion a week into the economy and enabled many of the unemployed to stay afloat. But the $600 a week in aid will expire after July, and Trump administration officials have said they oppose an extension.

Without the stimulus checks or an extension of unemployment aid, it’s unclear whether consumers will keep spending freely. In testimony to Congress last week, Federal Reserve Jerome Powell said he thought lawmakers should consider providing some form of extended unemployment benefits beyond their typical six-month period, on the assumption that joblessness will likely still be quite high by year’s end.

Last month’s rise in consumer spending also coincides with a sudden surge in coronavirus cases that’s forcing states and businesses to consider scaling back or even reversing the reopenings. If an escalation of the pandemic does force another round of widespread business shutdowns, fewer people would shop, travel, eat out or attend large events. That would reverse any rebound in spending.

Economists cautioned against reading much into last month’s surge in consumer spending. They noted that the increase followed two record declines and that it still left spending 11% below its pre-pandemic pace.

“Amid rapidly rising infections across many states, risks to the outlook are dangerously tilted to the downside,” Gregory Daco, chief U.S. economist at Oxford Economics, said in a research note.

Friday’s report showed the sharpest increase — a 29% jump — was for durable goods, led by purchases of autos and recreation vehicles. Spending on nondurable goods, which are items like food and clothing, rose nearly 8%.