US household spending posted a record decline in April as coronavirus lockdowns stayed in place, even as incomes unexpectedly jumped thanks to jobless benefits.
Consumer spending fell 13.6 per cent from March, the commerce department said on Friday — the steepest decline on records going back to 1959.
Spending accounts for a majority of US GDP. Economists had forecast a 12.6 per cent drop, according to a Reuters survey.
The situation is expected to reverse as states begin to gradually reopen, but economists at JPMorgan estimate that real consumption could be down at a seasonally adjusted annualised rate of 45 per cent in the second quarter.
Friday’s report also showed incomes jumped 10.5 per cent in April from the previous month, compared with expectations for a 6.5 per cent decline.
That rise “primarily reflected an increase in government social benefits to persons as payments were made to individuals from federal economic recovery programmes in response to the Covid-19 pandemic,” the commerce department said.
Donald Trump in March signed into law a historic $2.2tn stimulus package that included an extra $600 a week in unemployment insurance for those without work and one-time payments of up to $1,200 for individuals.
The unemployment top-up is due to run out at the end of July, however, and efforts to extend it — included in a Democratic plan for $3tn more in stimulus, which passed the House of Representatives earlier this month — are not supported by Republicans, who control the Senate. Opponents say extending the extra payments will force businesses to “compete” with unemployment benefits for workers.
“If rehiring lags, there will be massive pressure for another round of government payments and/or an extension of supplemental federal unemployment insurance payments likely structured to exclude those offered re-employment,” said Joshua Shapiro, economist at MFR.
The drop in spending and rise in incomes helped push the savings rate to a record 33. 3 per cent, up from 12.7 per cent in March, although this is also expected to reverse as benefits end and spending picks up.
Trade data released Friday further highlighted signs of stress to the economy from the pandemic. The trade deficit in goods widened to $69.7bn in April from $65bn the previous month, the commerce department said.
Merchandise exports tumbled 25.2 per cent, led by automobiles and consumer goods, while imports fell 14.3 per cent. “With global and US demand contracting at record pace, trade will be among the sectors hit hardest,” said James Watson, senior economist at Oxford Economics.