US personal consumption plunged a record 13.6 percent in April, the first full month where businesses closed their doors and shoppers stayed home to stop the coronavirus, the Commerce Department said Friday.
Prices also dropped by 0.5 percent, the biggest drop in more than five years, according to the monthly personal income and outlays report, as slowing consumption was worsened by mass layoffs that have now put around 40 million Americans out of work, at least temporarily.
A separate survey showed consumers are becoming more pessimistic about the prospects for the post-pandemic recovery, and together show the latest signs of the damage inflicted on the world’s largest economy, where key sectors have seen their operations snarled by measures aimed at stopping the pandemic that has killed more than 100,000 people.
“Household spending will likely continue to be impacted going forward by a more cautious attitude by consumers as job losses continue to mount,” Rubeela Farooqi of High Frequency Economics said.
“However, we think April likely marked the bottom and activity could be less weak in May and June.”
Fueling the $1.89 trillion drop in consumption were decreases in spending on food and accommodation as people stopped traveling and going out.
And that drop sent the personal savings rate soaring by 33 percent with shoppers holding on to $6.15 trillion — money that could be unleashed to aid the economy’s recovery or reserved for hard times ahead.
Income took an incongruent turn, shooting up by 10.5 percent in April, but that spike was caused by the government’s massive $2.2 trillion CARES Act which boosted unemployment benefits and included direct payments to all Americans.
When those payments are excluded along with other government social benefits, income actually fell 6.3 percent, which Harvard University economist Jason Furman said would be the largest decline ever.
And he warned on Twitter that if Congress fails to extend the expanded unemployment payments beyond their expiration in the coming weeks, “these numbers will turn ugly in August.”
The University of Michigan’s consumer sentiment index was practically flat in May, according to the survey released Friday, ticking up only half a point as consumers held back their buying.
But the index measuring future conditions plunged six points to 65.9, according to the report.
The CARES Act has “helped to stem economic hardship, but those programs have not acted to stimulate discretionary spending due to uncertainty about the future course of the pandemic,” the survey’s chief economist Richard Curtin said.
Consumers expecting the economy to improve in the coming months but be generally bad in the year-ahead period, Curtin said.
Source: AFP NEWS