Even as emergency government aid gave incomes a boost in April, coronavirus lockdowns caused Americans to shut their wallets, prompting the biggest monthly drop in consumer spending on record.
Personal income rose 10.5 percent, lifted by nearly $3 trillion in government transfer payments, mostly in the form of $1,200 checks that millions of households received from the federal government. But with stores closed and most Americans under stay-at-home orders, there wasn’t much opportunity to put that money to work, causing consumption to fall by 13.6 percent.
That combination of a cash infusion and nowhere to spend it caused the savings rate to soar to 33 percent, up 12.7 percent from March and the highest level since the government began tracking the information in 1959.
The data, reported Friday by the Commerce Department, is further evidence of an economy at a virtual standstill last month. There are preliminary signs that conditions have moderated since then, but the pain continues for many Americans. On Thursday, the Labor Department reported that 2.1 million more workers filed for unemployment insurance last week, bringing the total since mid-March to more than 40 million.
Given the plunge in consumer spending, which accounts for more than two-thirds of economic activity, many economists expect a drop of 40 percent or more in gross domestic product in the second quarter. Unemployment is already in double-digits, and each report seems to bring data unimaginable a few months ago.
“The numbers were wild,” Gregory Daco, chief U.S. economist at Oxford Economics, said of Friday’s report. “It’s not every year you get these kinds of crazy swings. It requires a bit of coolheadedness to understand what is transitory and what is permanent.”
Government payments, which pumped up personal income, he said, “are a one-time shot. If you take these benefits out, then you are left with a massive loss of income.”
The $1,200 federal checks made the biggest difference last month, but the government’s $600 in additional weekly unemployment benefits has been significant, too. That supplement to state payments is set to expire in late July.
Lingering fear is likely to restrain spending on social activities and discretionary items for a while. There are signs that spending has rebounded slightly in May, Mr. Daco said, but there is a long way to go before activity returns to precrisis levels.
“You might see strong growth numbers on spending, but we’re coming out of a deep hole,” he said.
The rise in personal income shows how critical the huge stimulus package passed in March was as the pandemic devastated private-sector jobs. Without it, the economic damage would have been even worse, experts say.
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“This is an unambiguous triumph of countercyclical government spending, which will save the U.S. economy a heap of trouble in the medium to long term,” said Troy Ludtka of Natixis CIB Americas, a corporate and investment banking firm. “If the private sector retrenches, government needs to pick up the slack. This is exactly what data for the month of April depicts.”
April represents the deepest point of the current economic downturn, said Michael Gapen, chief U.S. economist at Barclays. “The personal spending data was much weaker than we anticipated, and it spread across virtually all major categories,” he said.
But there were reasons for optimism in the report, namely in the income and savings data, he said.
“The potential good news is that there’s a large pool of savings that consumers can draw on to support spending as states reopen,” he said. “April should be the trough, and we expect May and June to look better, setting the economy up for a decent rebound in the second half of the year.”
In a separate report Friday, the University of Michigan reported that its gauge of consumer sentiment ticked up to 72.3 in May from 71.8 in April. The measure remains 20 points below its 12-month average.
The Coronavirus Outbreak
Frequently Asked Questions and Advice
Updated May 28, 2020
My state is reopening. Is it safe to go out?
States are reopening bit by bit. This means that more public spaces are available for use and more and more businesses are being allowed to open again. The federal government is largely leaving the decision up to states, and some state leaders are leaving the decision up to local authorities. Even if you aren’t being told to stay at home, it’s still a good idea to limit trips outside and your interaction with other people.
What’s the risk of catching coronavirus from a surface?
Touching contaminated objects and then infecting ourselves with the germs is not typically how the virus spreads. But it can happen. A number of studies of flu, rhinovirus, coronavirus and other microbes have shown that respiratory illnesses, including the new coronavirus, can spread by touching contaminated surfaces, particularly in places like day care centers, offices and hospitals. But a long chain of events has to happen for the disease to spread that way. The best way to protect yourself from coronavirus — whether it’s surface transmission or close human contact — is still social distancing, washing your hands, not touching your face and wearing masks.
What are the symptoms of coronavirus?
Common symptoms include fever, a dry cough, fatigue and difficulty breathing or shortness of breath. Some of these symptoms overlap with those of the flu, making detection difficult, but runny noses and stuffy sinuses are less common. The C.D.C. has also added chills, muscle pain, sore throat, headache and a new loss of the sense of taste or smell as symptoms to look out for. Most people fall ill five to seven days after exposure, but symptoms may appear in as few as two days or as many as 14 days.
How can I protect myself while flying?
If air travel is unavoidable, there are some steps you can take to protect yourself. Most important: Wash your hands often, and stop touching your face. If possible, choose a window seat. A study from Emory University found that during flu season, the safest place to sit on a plane is by a window, as people sitting in window seats had less contact with potentially sick people. Disinfect hard surfaces. When you get to your seat and your hands are clean, use disinfecting wipes to clean the hard surfaces at your seat like the head and arm rest, the seatbelt buckle, the remote, screen, seat back pocket and the tray table. If the seat is hard and nonporous or leather or pleather, you can wipe that down, too. (Using wipes on upholstered seats could lead to a wet seat and spreading of germs rather than killing them.)
How many people have lost their jobs due to coronavirus in the U.S.?
More than 40 million people — the equivalent of 1 in 4 U.S. workers — have filed for unemployment benefits since the pandemic took hold. One in five who were working in February reported losing a job or being furloughed in March or the beginning of April, data from a Federal Reserve survey released on May 14 showed, and that pain was highly concentrated among low earners. Fully 39 percent of former workers living in a household earning $40,000 or less lost work, compared with 13 percent in those making more than $100,000, a Fed official said.
Is ‘Covid toe’ a symptom of the disease?
There is an uptick in people reporting symptoms of chilblains, which are painful red or purple lesions that typically appear in the winter on fingers or toes. The lesions are emerging as yet another symptom of infection with the new coronavirus. Chilblains are caused by inflammation in small blood vessels in reaction to cold or damp conditions, but they are usually common in the coldest winter months. Federal health officials do not include toe lesions in the list of coronavirus symptoms, but some dermatologists are pushing for a change, saying so-called Covid toe should be sufficient grounds for testing.
Can I go to the park?
Yes, but make sure you keep six feet of distance between you and people who don’t live in your home. Even if you just hang out in a park, rather than go for a jog or a walk, getting some fresh air, and hopefully sunshine, is a good idea.
How do I take my temperature?
Taking one’s temperature to look for signs of fever is not as easy as it sounds, as “normal” temperature numbers can vary, but generally, keep an eye out for a temperature of 100.5 degrees Fahrenheit or higher. If you don’t have a thermometer (they can be pricey these days), there are other ways to figure out if you have a fever, or are at risk of Covid-19 complications.
Should I wear a mask?
The C.D.C. has recommended that all Americans wear cloth masks if they go out in public. This is a shift in federal guidance reflecting new concerns that the coronavirus is being spread by infected people who have no symptoms. Until now, the C.D.C., like the W.H.O., has advised that ordinary people don’t need to wear masks unless they are sick and coughing. Part of the reason was to preserve medical-grade masks for health care workers who desperately need them at a time when they are in continuously short supply. Masks don’t replace hand washing and social distancing.
What should I do if I feel sick?
If you’ve been exposed to the coronavirus or think you have, and have a fever or symptoms like a cough or difficulty breathing, call a doctor. They should give you advice on whether you should be tested, how to get tested, and how to seek medical treatment without potentially infecting or exposing others.
How do I get tested?
If you’re sick and you think you’ve been exposed to the new coronavirus, the C.D.C. recommends that you call your healthcare provider and explain your symptoms and fears. They will decide if you need to be tested. Keep in mind that there’s a chance — because of a lack of testing kits or because you’re asymptomatic, for instance — you won’t be able to get tested.
How can I help?
Charity Navigator, which evaluates charities using a numbers-based system, has a running list of nonprofits working in communities affected by the outbreak. You can give blood through the American Red Cross, and World Central Kitchen has stepped in to distribute meals in major cities.
“The fact that sentiment stabilized is encouraging,” Mr. Daco said. “But once the stimulus from the federal government fades out, we will be left with depressed incomes. This is a large amount of money for many people.”
Allie Radice is one of the unlikely savers who has benefited from federal payments but worries about how long they will last. She successfully applied for unemployment insurance after her work as a dancer as well as a server in the catering industry in Manhattan dried up in March.
With the $600 extra weekly benefit from the federal government factored in, her unemployment payments exceed what she earned in shows and catering. She received the $1,200 federal stimulus payment as well.
But she has been holding off on big purchases. She spent some of the $1,200 on rent and banked the rest. Now Ms. Radice is saving in case the government doesn’t extend the $600 weekly payments beyond late July, when they are set to expire.
She has limited her acquisitions to dance supplies: pointe shoes, a ballet barre and vinyl flooring. “I don’t feel the need to spend,” she said. “There’s nowhere to go out or any reason to get dressed up.”
In the meantime, Ms. Radice, 32, is taking online dance classes and voice lessons. “I intend to keep working on my craft,” she said. “I’m still paying rent, but there is unemployment for that. If I didn’t have that unemployment insurance, I’d be in a sticky situation.”
Source: Economy - nytimes.com
