US personal consumption plunged a record 13.6 per cent in April, the first full month where businesses closed their doors and shoppers stayed home to stop the coronavirus, the Commerce Department said on Friday.
Prices also dropped by 0.5 per cent, the biggest drop in more than five years, according to the PCE price index, as slowing consumption was worsened by mass layoffs that have now put some 40 million Americans out of work, at least temporarily.
The data were better than analysts expected but nonetheless the latest sign 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 1,00,000 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.
Income took an incongruent turn, shooting up by 10.5 per cent in April, a spike caused by the government’s massive $2.2 trillion CARES Act which boosted unemployment benefits and included direct payments to all Americans.
However, if those payments are excluded along with other government social benefits, income actually fell 6.3 per cent, 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 ‘these numbers will turn ugly in August.’
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