Wave of new coronavirus infections last month moderated stronger pace of prior two months
By guest author Harriet Torry from Wall Street Journal. Jeffrey Sparshott and Paul Hannon contributed to this article.
U.S. consumers boosted their spending in July, but more slowly than in prior months as new coronavirus infections rose and the expiration of enhanced unemployment checks loomed.
“Spending numbers have come back more than the economy as a whole, with the help of a lot of fiscal support,” said Jim O’Sullivan, an economist at TD Securities. “The question going forward is as fiscal support wanes, to what extent will it weaken.”
Personal-consumption expenditures, a measure of household spending on everything from haircuts to new cars, increased a seasonally adjusted 1.9 % in July from the prior month, the Commerce Department said Friday, August 28, 2020.
That marked a slowdown from the previous two months when it picked up strongly after collapsing during the coronavirus-related shutdowns of parts of the economy.
Economists say the wave of new coronavirus cases that swept the U.S. during July weakened the nascent economic recovery, even though nearly two million Americans joined the workforce.
Charlie Stout, owner of Cincinnati Dry Carpet Cleaning, put off a planned boat purchase this year because of the coronavirus pandemic. He also had to let go of two of his eight part-time workers.
“So I couldn’t buy my boat; this year a lot of people lost their jobs, so I’m fortunate,” the 34-year-old said.
Mr. Stout said “things have definitely improved” since March and “instead of buying something I would use as a leisure expense, I’m using the money to expand my business.”
U.S. debit- and credit-card spending, change from same week one year earlierSource: FacteusNote: Data is from 15 million debit and credit cards.
Economists say consumer spending in the months ahead will be clouded by the July 31 expiration of the UISD 600 weekly federal supplement to unemployment benefits for workers laid off during the coronavirus pandemic, which provided a key economic lifeline for many households.
President Trump signed an executive order Aug. 8 to offer $300 a week in federally funded enhanced unemployment benefits and called on the states to kick in an additional $100 a week, but left it to the states to decide whether to participate. The states that join the program will take an average of three weeks to send out the money, the Labor Department estimates.
“The end of the USD 600 and slow rollout of half of that is certainly going to impact spending,” said Joshua Shapiro, chief U.S. economist at MFR Inc.
Recent data through August from private firms suggest consumer spending overall appears to have made up much of the ground lost during the worst of the pandemic, though the recovery is uneven across the country and might have flattened out.
Earnest Research, a data analytics firm tracking U.S. consumer spending, found no real acceleration in total spending from July to August and significant disparities from state to state.
Grocery shoppers cut back on spending in August, data show, a sign many Americans are hurting for cash as the federal unemployment stimulus remains on hold for most recipients. Restaurant bookings and travel spending also remain depressed.
Meanwhile, many households are still earning more than they are spending during the pandemic, which economists say could fuel consumer spending in coming months. The personal saving rate was 17.8 % in July, down from 19.2% in June and 24.6% in May but well above the 7.6 % rate seen in January.
Consumer spending accounts for more than two-thirds of U.S. economic output, making it a key driver of the economy. Friday’s report showed overall consumer spending in July remained 4.6% below February’s prepandemic level.
But the report also confirmed recent data showing Americans’ retail shopping through July had surpassed pre-pandemic levels.
Similar trends are visible in other economies. France’s statistics agency Friday said household goods purchases rose 0.5 % in July, lifting spending above February’s level. In Spain, retail sales rose by 1.1 % in July, although spending had yet to return to February levels.
U.S. spending on services, which often involve close person-to-person contact like a visit to the dentist’s office, was still hovering below February levels, however, the Commerce Department said.
While new coronavirus infections in the U.S. appear to now be declining from the highs recorded in July, recent measures of consumer sentiment are mixed, suggesting households are hesitant about their economic prospects.
The University of Michigan said Friday its final index of consumer sentiment was 74.1 this month, up slightly from July’s reading of 72.5.
Since coronavirus-related shutdowns, “a sizable number of consumers thought conditions could hardly get any worse,” said Richard Curtin, the survey’s chief economist. “The natural response was that economic conditions would improve given the absence of any negative economic causes for the recession.”
However, the Conference Board, a private research group, on Tuesday said its consumer-confidence index dropped sharply in August to 84.8 from 91.7 in July. It also warned that households’ increasing concerns about the economic outlook and their financial well-being will likely cause spending to cool in the months ahead.
Hiring increased in July for the third consecutive month, with employers adding 1.8 million jobs, although the improvement appears to be halting. Initial jobless claims declined by 98,000 to 1 million in the week ended Aug. 22, the Labor Department said Thursday, August 27, 2020, signalling layoffs continue as the coronavirus hampers a smooth economic recovery.
Graph Graph US Credit & debit card spending from same weeka yer earlier
The Commerce Department also reported Friday that personal income—reflecting Americans’ pretax earnings from wages, salaries, investments and other sources—increased 0.4 % last month after declining 1 % in June and 4.2 % in May.
Nicky DeClerico, a retired postal-service worker in Philadelphia, said the Federal Reserve’s interest-rate cuts earlier this year were “a big hit to savings” that caused his total monthly income to drop by about 40 %.
“Interest-rate reductions are just killing savings…markets get everything and savers get nothing,” the 63-year-old said. He has also cut back on travel and stayed at home more because of the pandemic.
Mr. DeClerico has been looking to relocate to Wilmington, Delaware, but “everything is inflated—housing, asset prices—it’s like we’re being priced out.”