Consumer spending increases 8.2 percent
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 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 sixmonth period, on the assumption that joblessness will likely still be quite high by year’s end.
The rise in consumer spending coincides with a sudden surge in coronavirus cases that’s forcing states and businesses to consider scaling back or reversing the reopenings. If an escalation of the pandemic forces another round of widespread business shutdowns, fewer people would shop, travel, eat out or attend large events. That would reverse any rebound in spending and would further weaken the economy.