As stimulus and COVID fade, our growing economy is hitting a crossroad

If you just looked at the overall numbers from the recent income and spending report for May, you'd think we were in an economy which is seeing fading stimulus lead to a leveling off of overall spending.

Personal income decreased $414.3 billion (2.0 percent) in May according to estimates released today by the Bureau of Economic Analysis (tables 3 and 5). Disposable personal income(DPI) decreased $436.3 billion (2.3 percent) and personal consumption expenditures(PCE) increased $2.9 billion (less than 0.1percent).

Real DPI decreased 2.8 percent in May and Real PCE decreased 0.4 percent; goods decreased 2.0 percent and services increased 0.4 percent (tables 5 and 7). The PCE price index increased 0.4 percent. Excluding food and energy, the PCE price index increased 0.5 percent (table 9).

The decline in incomes is a direct result of a reduction of $560 billion in stimulus checks (annual basis) and $36 billion in unemploymenty benefits. Take that out, and we would have had a decent increase in incomes, particularly in wages and salaries.

And look on the right side of that graph. For the first time since COVID broke out, the growth in wages and salaries vs February 2020 is more than the growth in unemployment benefits. Not really what the oligarchs and their GOP puppetmasters are spinning about "lazy people on unemployment", is it?

The spending side is even more interesting, even though the overall consumption numbers barely changed in May and real consumption had a small decline. It indicates a shift back toward pre-COVID spending patterns as vaccinations grew and weather warmed. Goods spending had significant drops (and may also reflect supply chain difficulties, particularly in autos), but services continued to claw its way back from the severe depression that it fell into when COVID first broke out.

In particular, spending in leisure, entertainment and transportation spending has benefitted from the fading of COVID and increased activities to go along with warmer May temperatures. These industries are not all the way back by any means, but the recent shift is clear.

There is little question that the economy picked up between February and May, largely due to stimulus and improved public health. But now the question is whether this elevated level of activity keeps up. The stimmy checks have already been paid, but job and wage growth is continuing. And there are clearly adjustments going on where increased demand for services and decreased need (and supply) for goods is going to lead to disruptions in good and bad ways.

You also can see that we are not all the way back, and need to keep demand going for the second half of 2021 in order to continue the Biden Boom that we have had for the last few months, so more Americans can continue to get back toward the pre-COVID normal.