No more unemployment = less income in September. But spending was still strong

As another stimulus/infrastructure package gets debated in DC, a central part of the last package passed back in March is starting to fade out. The expanded unemployment benefits that allowed for Americans to receive UI for more than 26 weeks as well as the gig employment-based PUA program both ended after Labor Day, as did the $300/week add-on to benefits. That is starting to show up in recent data.

The ending of unemployment benefits is the reason overall American income dropped in September, as we found out on Friday.

The decrease in personal income in September primarily reflected a decrease in government social benefits, both in unemployment benefits and “other” benefits. Unemployment insurance decreased reflecting decreases in payments from the Pandemic Unemployment Compensation program, the Pandemic Emergency Unemployment Compensation program, and the Pandemic Unemployment Assistance program. “Other” social benefits decreased primarily reflecting decreases in the Provider Relief Fund, economic impact payments, and Paycheck Protection Program loans to nonprofit institutions.

As that paragraph alludes to, a lot of CARES and ARPA-era relief was going away as the 3rd quarter of 2021 ended, and the $254.6 billion (annual basis) decline in benefit payments brought income from unemployment down to levels that we haven't seen since COVID shutdowns began in March 2020.

Conversely, wage and salary growth continued to roll on last month, and now is far and away the largest source of income growth today compared to where we were before COVID first broke out.

This drop in unemployment benefits is also clear when you look at the number of people on the rolls. Not only because the PUA and PEUC programs ended, but claims in the regular program are also shrinking as the economy continues to recover.

The obvious question going forward is “What happened to those millions of people who lost benefits”? Did they go back to the work force? Did they drop out of the work force and never come back? And are they going through hard economic times now, which might limit spending in the future.

That didn’t happen in September, as consumer spending went up by a decent 0.6%, and August’s increase was revised up from 1.0% to 0.8%.

The $93.4 billion increase in current dollar PCE in September reflected an increase of $63.6 billion in spending for services and a $29.9 billion increase in spending for goods .Within services, the largest contributors to the increase were spending for health care as well as food services and accommodations. Within goods, an increase in spending for nondurable goods was partly offset by a decrease in durable goods. The increase in nondurable goods primarily reflected increases in food and beverages, “other” nondurable goods (led by pharmaceutical products), and gasoline and other energy goods. The decrease in durable goods primarily reflected a decrease in motor vehicles and parts (led by new motor vehicles).

That cutback in cars and auto parts was a major overhang in the 3rd Quarter GDP figures, and the question going forward is whether the appetite for buying autos comes back as more vehicles come back on lots, or if that’s a leading indicator of consumer weakness in other areas.

I think the rise in wages that has been happening in 2021 should keep consumer spending going through what is anticipated to be a record Holiday season. But keep an eye on what happens as the bills keep coming in and any left-iver relief funds get used up over the last 3 months of this year. And let's see if further help is on the way from DC – either in the form of more social supports, or straight paychecks like the Child Tax Credit.