Thought June 26, 2020 / 01:36 pm UTC

U.S. Consumers Struggling to Spend Stimulus Payments

By David Sloan

May U.S. personal income, with a 4.2% fall, held on to more of its 10.8% April rise than expected. Meanwhile, May's personal spending, with a rise of 8.2%, unlike retail sales, was unable to fully erase its April decline, now at -12.6% versus a previously reported -13.6%.

A 2.7% increase in wages and salaries after a 7.6% April decline was close to our expectation, based on the details of May’s non-farm payroll. The other components of personal income fell by $1.1 trillion (annualized), after surging $2.7 trillion in April, the moves largely on stimulus payments.

Personal spending rose by 8.2% in May after declining by 12.6% in April and 6.6% in March. Durables with a surge of 28.6% are close to February’s level, but a 7.7% rise in non-durables failed to erase April’s decline. Meanwhile services, where the information is mostly new, rose only by only 5.4% after falling by 12.2% in April and 8.9% in March.

The sector most strikingly weak is recreation, up by only 4.5% after falling by 42.4% in April. Other services with a rise of only 2.8% are still weak after falling by 14.5% in April. Health, transportation and food/accommodation all increased by over 20% in May, but in each case April’s decline was not fully reversed.

If June data is unchanged, real disposable income would be up by 39.5% annualized in Q2 while real personal spending would be down by 38.8%. More likely June will see similar changes to May. Then, the respective annualized changes would be up 30.6% and down 31.7%. Consumers have disposable money, but social distancing, often by choice, makes spending on services in particular difficult. Continued high COVID-19 infections may cause that to persist well into Q3 at least. 

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I, David Sloan, the lead analyst certify that the views expressed herein are mine and are clear, fair and not misleading at the time of publication. They have not been influenced by any relationship, either a personal relationship of mine or a relationship of the firm, to any entity described or referred to herein nor to any client of Continuum Economics nor has any inducement been received in relation to those views. I further certify that in the preparation and publication of this report I have at all times followed all relevant Continuum Economics compliance protocols including those reasonably seeking to prevent the receipt or misuse of material non-public information.