(CBS) — U.S. consumer spending plunged by a record-shattering 13.6% in April as the coronavirus pandemic shuttered businesses, forced millions of layoffs and sent the economy into a deep recession, according to figures released Friday by the Commerce Department.
Last month’s spending drop was far worse than the revised 6.9% tumble in March, which at the time had set a record for the steepest one-month fall since 1959. The data provide further evidence that the economy is gripped by the worst downturn in decades, with consumers unable or too anxious to spend much.
The report showed sharp declines in consumer spending across the board — from durable goods like cars to non-durable items such as clothing to services ranging from doctor visits to haircuts. Spending tumbled 17.3% for durable goods, 16.2% for non-durables and 12.2% for services.
Overall, spending dropped by $1.8 trillion between March and April — the equivalent of the entire annual economic output of Russia.
Even with employers cutting millions of jobs, personal incomes soared 10.5% in April, reflecting support through government payments in the form of unemployment aid and stimulus checks. Wages and salaries, normally the key component of overall income, sank by an annualized $740 billion in April. By contrast, income in the form of government support jumped by an annualized $3 trillion. That form of income, though, will likely fade in coming months as certain forms of government aid expire.
The acute uncertainty of the current recession is also driving consumers to save, rather than spend, any money they have coming in, in case future rainy days end up feeling like monsoons.
“Amid extreme uncertainty, the savings rate spiked from 12.7% to 33.0% — the highest rate ever. This underscores how the global coronavirus recession is leading to more frugal consumer behavior which will dampen the recovery,” economists at Oxford Economics wrote in a note.
The depth of the spending drop is particularly damaging because consumer spending is the primary driver of the economy, accounting for about 70% of economic activity. Last month’s figure signaled that the April-June quarter will be especially grim, with the economy thought to be shrinking at an annual rate near 40%. That would be, by far, the worst quarterly contraction on record.
In April, the nation’s jobless rate was 14.7%, the highest since the Great Depression, and many economists think it will top 20% for May. States are gradually restarting their economies by letting some businesses reopen with certain restrictions, and some laid-off employees are being recalled to work. Still, the job market remains severely depressed, and the outlook for the rest of the year is bleak.
The Trump administration asserts that the economy will begin to regain its health in the second half of the year, with businesses increasingly reopening and restoring jobs and consumers increasing spending. Most economists say, though, that the lingering effects of the job losses and likely business bankruptcies will take longer to overcome, especially if a second wave of the coronavirus erupts. Analysts generally believe the economy won’t manage to sustain a solid recovery until a vaccine is widely available.
And until Americans resume spending at something close to their previous levels, jobs won’t likely return in a significant way. Data from Chase Bank credit and debit cards shows that consumers have slowly increased their spending since the government distributed $1,200 relief checks in mid-April. But most of that increase has occurred in online shopping. Spending in regular brick and mortar stores, which makes up the vast majority of consumer spending, is still down 35% from a year ago, according to Chase.
First published on May 29, 2020 / 12:21 PM
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