(Bloomberg) -- The rebound in U.S. consumer spending slowed
in July amid a surge in virus cases, and now faces another roadblock after the
government cut unemployment benefits.
Household outlays rose 1.9% from the prior month following
an upwardly revised 6.2% rise in the prior month, a Commerce Department report
showed Friday. That compared with economists’ estimates for a 1.6% gain.
Personal incomes rose 0.4%, topping expectations for a slight decline.
The deceleration in spending -- which accounts for about
two-thirds of the economy -- marks a tempering in the economic recovery
following two months of stronger gains. While spending has increased in recent
months, total outlays remain below pre-pandemic levels. Spending could take a
further hit in August after the expiration of the extra $600 in weekly jobless
benefits at the end of July, which had propped up incomes and consumption.
“The combination of a rebound in employment plus government
transfer payments is keeping household income levels elevated,” said Michael
Gapen, chief U.S. economist at Barclays Plc. But “August is likely to be a very
different month” given the expiration of the supplemental jobless benefit
payments at the end of July.
President Donald Trump signed an executive action in early
August to provide an extra weekly $300 in federal benefits for most
unemployment insurance recipients as a stopgap measure after lawmakers failed
to reach agreement on a comprehensive stimulus bill. But pickup of the program
will take time. More than half of the nation’s states have been approved for
the program, but only a handful have actually begun to make payments. Others
anticipate it could be weeks before residents see the aid.
What Bloomberg’s Economists Say
“The data showed personal spending growth was already
slowing significantly from the previous two months, a period when it had
rebounded after plummeting amid coronavirus-related shutdowns. The loss of
benefits will have a sizable impact on overall income growth, while the yawning
gap in wage income has yet to close.”
-- Yelena Shulyatyeva and Eliza Winger
A separate report Friday showed U.S. consumer sentiment
edged up in late August while remaining well below pre-pandemic levels. Other
data showed U.S. imports and exports jumped in July, pointing to a continued
stabilization in commerce as global economies start to recover from the
pandemic. The merchandise-trade deficit grew to $79.3 billion last month, the
widest since late 2018.
U.S. stocks opened higher on Friday, while 10-year Treasury
yields and the dollar were lower.
The income and spending report showed wages and salaries
rose 1.4% in July, reflecting continued hiring and rehiring in the wake of
business reopenings, though the gains slowed from the prior two months.
Benefit Boost
Meanwhile, the impact of unemployment benefits was clear:
Unemployment insurance payments still made up 6.8% of incomes in July,
following 7.4% in June.
Adjusted for inflation, real consumer spending rose 1.6% in
July following a 5.7% increase in June. Motor vehicles, health care and
restaurants and hotels drove the month’s gain in outlays, according to the
report.
More broadly, the economy is in a precarious state. Jobless
claims remain extraordinarily high, the trend in job postings has pulled back
in recent weeks and small businesses are looking to further government support.
The nation has recouped fewer than half of the jobs it lost in March and April,
underscoring that it will take time before the U.S. economy -- and the jobs
market -- look anything like they did before the pandemic.
The personal savings rate, which had surged to a record in
April as a result of the rise in government social benefits, fell to a
four-month low of 17.8%, though that’s still more than double February’s level
of 8.3%.
While Federal Reserve Chair Jerome Powell said Thursday that
the central bank will seek inflation that averages 2% over time, current gauges
of consumer prices are well below that 2% target. The index of consumer prices
that the Fed officially uses for its target rose 1% in July from a year
earlier. The core price index, which excludes more-volatile food and energy
costs, increased 1.3%.
“Looking ahead, consumption should continue to firm as
conditions very slowly normalize,” Oxford Economics’ Lydia Boussour and Gregory
Daco wrote in a note. “But the steep decline in federal support for unemployed
workers and heightened uncertainty will depress consumer confidence and
spending and weigh on the broader economic recovery.”
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