U.S. Consumer Spending Rebounded in May While Incomes Fell
U.S. consumer spending surged by a record in May -- while remaining well below pre-pandemic levels.
(Bloomberg) -- U.S. consumer spending surged by a record in May -- while remaining well below pre-pandemic levels -- as Americans spent relief payments and ventured out of their homes to newly reopened stores and restaurants.
Household outlays rose 8.2% from the prior month, the sharpest increase in more than six decades worth of data, after falling by the most on record in April, a Commerce Department report showed Friday. The median estimate in a Bloomberg survey of economists called for a 9.3% jump.
Incomes declined 4.2%, just short of a record decrease, after posting the largest-ever increase in April that was driven mostly by household relief payments, or the $1,200 refundable tax credits distributed to Americans. Economists expected a 6% drop in May; the report said relief payments continued in May but at a lower level than in April, while unemployment-insurance payments surged, helped by the federal government’s extra $600 in weekly benefits.
The figures signal that the recovery in consumption got off to a solid start as many businesses reopened and Americans used their government stimulus checks, in line with other figures showing a jump in jobs during May. Even so, monthly spending is still much weaker than it was several months ago, suggesting it will take time before America’s main driver of economic growth fully recovers -- especially if lawmakers allow the supplemental jobless benefits to expire at the end of July.
“Government stimulus measures are providing a big boost to income,” said Brett Ryan, senior U.S. economist at Deutsche Bank AG. If that boost is removed when the supplemental benefits expire, “it will have an impact on consumer spending in the back half of the year,” he said.
What Bloomberg’s Economists Say
Bloomberg Economics expects a lengthy period of uncertainty and an incomplete jobs recovery to keep not only consumer spending -- and GDP -- below pre-pandemic levels for a lengthy period, but to also result in more aid being required from Congress.
-- Andrew Husby, Yelena Shulyatyeva and Eliza Winger
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On top of that, persistently high unemployment, along with a surge in new cases and hospitalizations across the South and West, are likely to weigh on spending. In fact, in-person spending at restaurants has recently been a reliable predictor of local increases in coronavirus infections, according to a JPMorgan Chase & Co. report Thursday.
U.S. stocks fell on Friday and Treasuries rose as a resurgence in new virus infections threatened to halt progress on reopening the economy. A separate report Friday showed U.S. consumer sentiment stumbled in late June from earlier in the month.
Wages and salaries rose 2.7% in May from the prior month, the largest increase since 1993, reflecting modest rehiring as businesses reopened across the country. That followed a record 7.6% drop in April.
The report showed expanded unemployment benefits are supporting incomes that were hit by job losses or reduced hours.
Receipts of unemployment insurance benefits rose an annualized $825.3 billion from the prior month, with Pandemic Unemployment Compensation payments making up $691.9 billion of the increase. Pandemic Unemployment Assistance, or the expansion of unemployment benefits to those not typically eligible like the self-employed, accounted for $101.5 billion.
Spending Drivers
The main drivers of the monthly increase in spending were outlays on autos, health care and restaurants, along with clothing, fuel, televisions and computers. Bicycles, recreational vehicles and boats also contributed to the gain, benefiting from shifts in consumer demand.
The majority of adults have used their stimulus check or plan to use it on household expenses like food, housing and utilities, according to a Census Bureau survey. That compares with about 14% of adults who said they planned to mostly save the funds.
The personal savings rate, which had surged to a record 32.2% in April as a result of the rise in government social benefits, fell to 23.2% -- still almost triple February’s 8.4%.
The gauge of consumer prices the Federal Reserve officially uses for its target rose 0.5% in May from a year earlier, the least since 2015, and well below the central bank’s 2% goal. The core price index, which excludes more-volatile food and energy costs, rose 1%, matching April as the smallest gain since 2011.
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