{"id":1747,"date":"2020-05-29T11:03:20","date_gmt":"2020-05-29T15:03:20","guid":{"rendered":"https:\/\/naroffeconomics.com\/?p=1747"},"modified":"2020-05-29T11:03:20","modified_gmt":"2020-05-29T15:03:20","slug":"april-consumer-spending-and-income-and-may-consumer-sentiment","status":"publish","type":"post","link":"https:\/\/naroffeconomics.com\/?p=1747","title":{"rendered":"April Consumer Spending and Income and May Consumer Sentiment"},"content":{"rendered":"\n

KEY DATA:<\/strong>  Consumption: -13.6%; Disposable Income:\n+12.9%; Wages: -8.0%; Savings Rate: 33.0%; Prices: -0.5%; Ex-Food and Energy:\n-0.4%\/ Sentiment: up 0.5 point <\/p>\n\n\n\n

IN A\nNUTSHELL:<\/strong>  \u201cRight now, the economy is totally dependent\nupon the largesse of the government.\u201d<\/em><\/strong><\/p>\n\n\n\n

WHAT IT\nMEANS:<\/strong>  The horrible April data continued today as\nconsumer spending collapsed in April.<\/em><\/strong> \nThe percentage decline was nearly seven times the previous largest\ndrop.  You just don\u2019t see numbers like\nthat.  Consumption of durables,\nnondurables and services were all down by double digits, so you cannot simply\nascribe the collapse to just a fall off in vehicle purchases. <\/em><\/strong> On the income side, the numbers were totally\ndifferent, but just as worrisome.  Income\nsurged, but it was all due to an additional $3 trillion in government payments<\/em><\/strong>,\na 90% increase.  However, wages\nand salaries were down nearly $880 billion<\/em><\/strong>, an 8% drop.  Rising income, regardless of the source,\ncoupled with cratering spending led to a record-high savings rate of 33%.  That is nearly double the previous peak.<\/em><\/strong>  Households are saving for the rainy day that\nis already here.  On the inflation front, prices\nwere down fairly sharply.<\/em><\/strong>  We\nstarted off the quarter with consumption falling at a greater than fifty\npercent annualized pace, compared to the level of spending in the first\nquarter.  That will likely moderate going\nforward, but it shows the huge hurdle the economy faces in getting back to more\nnormal levels of consumption.  It also\nexplains why some forecasters have growth declining by upwards of forty percent\nin the quarter.  I have been at -22%, but\nit is early.  Hopefully, some of the\nsavings will be put to use in May and June and the decline will be less than\nfeared.  <\/p>\n\n\n\n

Will consumers spend more going forward?  <\/em><\/strong>Undoubtedly yes, but the issue is how much?  Confidence will be the key and the University\nof Michigan\u2019s Consumer Sentiment Index was a disappointment.  The final May number was just a touch above\nthe April level<\/em><\/strong> and was below the mid-month reading.  Current conditions were up from April, but\nexpectations were down.<\/em><\/strong>  That is\nworrisome, as the reopening of the economy should have caused households to be\nmore confident about the future.  So far,\nit hasn\u2019t.<\/p>\n\n\n\n

IMPLICATIONS:<\/strong> Nearly two months ago I posted my\nview on what I expected the recovery to look like<\/em><\/strong>.  I called it a \u201cBig V little u\u201d recovery.  That is, the third quarter would be strong, the\nfourth solid but afterward, the expansion would lose steam.  My biggest concern was what would happen when\nthe economy had to stop depending upon government assistance and the private\nsector would have to stand on its own.  The\nincome numbers show just how reliant the current economy is on government welfare.<\/em><\/strong>  Some of the savings will be spent over the\nnext few months, but if concerns about the future that we saw in the University\nof Michigan\u2019s survey continue, don\u2019t look for a surge in demand.  Regardless, the extra funding will start\nrunning out during the summer.  What will\nthe economy do then?  Will the federal government\nkeep sending out checks or will the household and business welfare payments dry\nup?  Will state and local governments be\nable to keep cutbacks to a minimum or will the unwillingness to provide funding\nsimilar to what has been given to businesses and households lead to major spending\nand payroll reductions?<\/em><\/strong>  Income\ngains will have to come from private sector job growth that is not limited to\nthe reopening of businesses.  We\nare likely to have an unemployment rate in the 10% range even at the end of the\nyear and that means total personal income would be below where it was at the\nend of 2019.<\/em><\/strong>  These were all the\npoints I made two months ago and the data seem to be supporting my\nconcerns.  I am not trying to be negative;\nit\u2019s just that I believe it is time to get realistic about the\npotential for growth over the next year, not the just next few months.  <\/em><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

KEY DATA:  Consumption: -13.6%; Disposable Income: +12.9%; Wages: -8.0%; Savings Rate: 33.0%; Prices: -0.5%; Ex-Food and Energy: -0.4%\/ Sentiment: up 0.5 point IN A NUTSHELL:  \u201cRight now, the economy is totally dependent upon the largesse of the government.\u201d WHAT IT MEANS:  The horrible April data continued today as consumer spending collapsed in April.  The percentage … Continue reading April Consumer Spending and Income and May Consumer Sentiment<\/span> →<\/span><\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-1747","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/posts\/1747","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1747"}],"version-history":[{"count":1,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/posts\/1747\/revisions"}],"predecessor-version":[{"id":1748,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/posts\/1747\/revisions\/1748"}],"wp:attachment":[{"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1747"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1747"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1747"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}