Despite COVID headwinds, US spending and incomes slogged ahead in August

With COVID's resurgence in August, I've been looking to see if that is causing other problems in the overall economy. Based on Friday's income and spending report, it looks like the answer is "not much yet," although July's numbers weren't as great as first advertised.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, rebounded 0.8% in August. Data for July was revised down to show spending dipping 0.1% instead of gaining 0.3% as previously reported.

Consumption was boosted by a 1.2% rise in purchases of goods, reflecting increases in spending on food and household supplies as well as recreational items, which offset a drop in motor vehicle outlays. A global shortage of semiconductors is undercutting the production of automobiles....

Economists polled by Reuters had forecast consumer spending increasing 0.6% in August.

Most categories of spending were strong in August, even accounting for the 0.4% increase in inflation for the month. But as mentioned in the article, one clear exception has been spending on autos and auto parts, which now has plummeted after a Springtime surge.

Services spending was severely hurt when COVID first broke out in early 2020, and declined during the pandemic's worst days last Winter. But that hasn't happened yet with the Summer spike of 2021, although there was a bit of leveling off compared to the growth we saw earlier in the year.

On the income side, the overall number was relatively tepid, but that's more of a reflection of a fade-out of Biden Administration stimulus measures than any kind of economic slowdown, as wages and salaries continue to grow.

Though personal income gained only 0.2% in August after rising 1.1% in July as an increase in Child Tax Credit payments from the government was offset by decreases in unemployment insurance checks related to the pandemic, wages are rising as companies compete for scarce workers. Wages rose 0.5% in August, which should help to keep spending supported.

With inflation high, real disposable income dropped 0.3% after increasing 0.7% in July. The saving rate fell to a still-high 9.4% from 10.1% in July.

Wage and salary growth passed unemployment benefits for COVID-era income growth in June, and that gap continued to grow throughout the Summer.

Another item keeping a lid on income growth in August was the fact that businesses were seeing their loans run out under PPP 2.0. But underlying income growth for businesses kept going in the right direction.

So August was kind of a status quo with small but continued growth in base incomes and spending, but September had other concerns for ecomnomic activity. Another sizable source of national income get pulled away, as millions of Americans lost $300/week unemployment add-ons, along with the end of long-term benefits and the PUA program. COVID also remained a scourge for much of the country in September, and new unemployment filings are a bit higher over the last few weeks.

Even though the underlying fundamentals of the economy does seem to be better than 6 months ago, it also is clear that things are not back to pre-COVID normal. That means there is certainly a need in continuing demand through investments in infrastructure and added supports for the many Americans that are facing economic stress from the pandemic and/or the long-term changes in spending habits that have resulted.

With this reality in mind, failing to pass the two infrastructure bills in Congress would put the good economic growth of the last 6 months at serious risk of ending. That might be what Republicans want to see ahead of the 2022 midterms so they can return to power, but it's not something that would be good for most of Real America.