U.S. consumer spending plunges 13.6% in April

Americans saving money at record pace

WASHINGTON • U. S. consumers cut spending by the most on record for the second straight month in April while boosting savings to an all- time high, and the growing frugality reinforced expectations the economy could take years to recover from COVID-19.

The report from the Commerce Department on Friday, together with news that monthly exports collapsed, left economists anticipating the largest contraction in gross domestic product in the second quarter since the Great Depression of the 1930s. Data has also been dismal this month on the labour market, manufacturing production and homebuilding.

The Commerce Department said consumer spending, which accounts for more than two-thirds of U. S. economic activity, plunged 13.6 per cent last month, the biggest drop since the government started tracking the series in 1959. It eclipsed the previous all-time decrease of 6.9 per cent in March.

Economists polled by Reuters had forecast consumer spending would plummet 12.6 per cent in April. Spending was depressed by a decrease in outlays on health care as dental offices closed and hospitals postponed elective surgeries and non-emergency visits to focus on patients suffering from COVID-19.

The disease has killed over 100,000 people in the United States, the highest death toll in the world.

Spending declined at restaurants, which have shifted to delivery and pickup service only, and hotels and motels. Spending on food and beverages fell in April.

But the COVID-19 crisis boosted incomes for consumers in April as the government’s historic fiscal package worth nearly US$ 3 trillion doled out one- time US$ 1,200 cheques to millions of people and boosted unemployment benefits for the roughly 31 million out of work to cushion against economic hardship wrought by the pandemic.

Personal income surged 10.5 per cent last month after falling 2.2 per cent in March.

Savings soared to a historic US$ 4 trillion, with the saving rate hitting a record 33 per cent.

But business closures weighed on wages, which dropped 8.0 per cent in April after falling 3.5 per cent in March.

“The saving rate represents both opportunity and a warning,” said Chris Low, chief economist at FHN in New York. “If the economy reopens quickly without consequence these savings represent considerable spending power in the second half. If it takes longer to reopen the economy, these savings will be used for sustenance over the next few months.”

The economy is gradually reopening after non- essential businesses were shuttered in mid- March to slow the spread of COVID-19, raising hope economic slump was nearing a bottom.

Stocks on Wall Street were trading lower as investors braced for a U. S. response to China’s national security law on Hong Kong. The dollar fell against a basket of currencies, while U. S. Treasury prices rose.

In a second report on Friday, the Commerce Department said goods exports tumbled 25.2 per cent to US$95.4 billion in April, a 10-year low. The broad decline in exports was led by a 65.9 per cent collapse in shipments of motor vehicles and parts. That outpaced a 14.3 per cent tumble in imports. As a result, the goods trade deficit widened 7.2 per cent to 69.7 billion last month.

The wider goods trade deficit is likely a drag on second quarter gross domestic product, which economists expect could drop at as much as a 40 per cent rate.