Consumer spending plunges as Americans hoard cash amid coronavirus

Marco Green
May 29, 2020

USA consumer spending took a record nosedive last month as Americans hoarded cash during the coronavirus pandemic, new data show. That's the biggest drop since the government began tracking that data in 1959, and that decline was even deeper than economists had forecast. Savings soared to a historic $4 trillion, with the saving rate hitting a record 33%.

Incomes also increased 10.5%, reflecting the $3 trillion of government social benefits paid during the month.

In a second report on Friday, the Commerce Department said goods exports tumbled 25.2% to $95.4 billion in April, a 10-year low. The decline was driven by slumps in spending on food and beverages, healthcare, hotels, and restaurants. "The anticipated records in April PCE prices, personal spending and income are already past history". Personal spending is predicted to tumble 12.6% in April after the March 7.5% decline.

"The full economic effects of the COVID-19 pandemic can not be quantified in the personal income and outlays estimate for April because the impacts are generally embedded in source data and can not be separately identified", it said.

The Covid-19 crisis boosted incomes for consumers in April as the government's historic fiscal package worth almost US$3 trillion (RM13 trillion) doled out US$1,200 checks to millions of people and boosted unemployment benefits to cushion against the economic hardship wrought by the pandemic.

Consumer spending - which makes up more than two thirds of the nation's economic activity - may recover as states ease lockdown measures and businesses reopen. In May, it's likely that stimulus payments and unemployment benefits will tick up while compensation drops, leading to another jump in overall incomes, Shepherdson said.

The PCE price index - the Federal Reserve's preferred gauge of consumer prices - gained 0.5% on the year.

In the 12 months through April, the so-called core PCE price index rose 1.0 per cent. The US central bank has a two per cent inflation target.

Other reports by Click Lancashire

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