Economic News

U.S. Consumer Spending Increased in May, Income Fell

With the United States still navigating unprecedented times due to the COVID-19 pandemic, a new report brings both good and bad news on the economic front. According to the latest figures from the Bureau of Economic Analysis, personal consumption expenditures (PCE) grew 8.2% in May to reach $994.5 billion. As CNN Business notes, that’s a reversal from last month when spending dropped by 12.6%. Meanwhile the “real PCE” — which factors in inflation — noted $892.6 billion in consumer spending for the month. That dollar amount included $590.4 billion spent on goods and $363.8 billion on services. For the month, Americans also had a savings rate of 23.2%. While impressive, this was down from the 32.2% rate observed in April.

While the increases in PCE may be encouraging for a potential recovery, the other part of the equation paints a less optimistic picture. For May, personal income decreased $874.2 billion — off 4.2%. At the same time, disposable income fell 4.9% ( 5% in “real” terms).

The BEA report suggests the dip in income was partially due to a reduction in those receiving federal economic recovery funds. Although directed payments to Americans authorized under the CARES Act continued to go out in May, they did so at a lower level than in April. Another aspect of the CARES Act that allows unemployed workers to earn an addition $600 per week remained active in May and partially offset what could have been a larger drop in income.

Speaking to Barrons, MUFG chief financial economist Chris Rupkey said of the latest report data, “The future spending plans of Americans are very much in doubt after personal income fell 4.2% in May. You can’t spend it if you haven’t got it, and right now the economy’s recovery is being dragged down by the millions and millions of Americans without jobs [who] simply haven’t got it.” Elsewhere, Oxford Economics chief U.S. economist Greg Daco explained to the outlet that some of the positive signs the economy has seen could actually lead to trouble, noting “We fear the ‘summer policy paradox’ in which policy makers misinterpret strong growth rebounds from depressed levels of activity as reason to forego further stimulus, putting the recovery at risk.”

To Daco’s point, it’s currently unclear if or when another round of stimulus could pass through Congress. Despite the House of Representatives passing the HEROES Act last month, the bill has yet to be taken up in the Senate. Instead, there’s been talk about a different type of stimulus — namely a potential $4,000 travel tax credit for Americans — being discussed on the right side of the aisle. Given this uncertainty and the mixed messages coming from the various economic reports, it seems too early to tell what kind of recovery the United States could see in the months ahead. All we can do is hope for the best.

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