U.S. consumer spending plunges; government aid boosts incomes
U.S. consumer spending, which accounts for about two-thirds of the world's largest economy, plunged in April by the most on record after the coronavirus pandemic halted purchases of all but the most essential goods and services.
Household outlays fell 13.6% from the prior month, the sharpest drop in Commerce Department records back to 1959, data showed Friday. The median estimate in a Bloomberg survey of economists called for a 12.8% decline.
Incomes posted a record 10.5% increase, contrasting with estimates for a 5.9% decline, as federal economic-recovery payments were distributed under the CARES Act, the report said. It showed an annualized $3 trillion of government social benefits were provided in April, up from $70.2 billion the prior month.
With the drop in spending, the personal savings rate jumped to a record 33% from 12.7%.
The Federal Reserve's preferred gauge of consumer prices rose 0.5% from a year earlier, the slowest pace since 1961 and far below the central bank's 2% target. The core price index, which excludes more-volatile food and energy costs, advanced 1%, the least since 2011.
While the income replacement is helping consumers and Americans are slowly returning to traveling and eating out, economists expect it will take at least a year before spending recovers to pre-virus levels -- especially with no vaccine or significant treatment yet in sight for a disease that's killed more than 100,000 Americans, the highest official toll in the world.
In a contrast with the headline income number, wages and salaries fell 8% from the prior month amid widespread job losses, reductions in hours and pay cuts. The income category of personal current transfer receipts surged 89.6%.
A separate report Friday showed U.S. merchandise trade in April slumped to the lowest level in a decade as the pandemic curtailed demand and disrupted supply lines.
After adjusting for inflation, spending fell by an annualized $1.66 trillion, or 13.2% in April, also the most ever, supporting forecasts for gross domestic product to shrink by a record in the April-June period. The main drivers of the monthly decline were spending on food and beverages, restaurants, hotels and health care.
