Personal income increased $1.97 trillion (10.5 percent) in April according to estimates released today by the Bureau of Economic Analysis (tables 3 and 5). Disposable personal income (DPI) increased $2.13 trillion (12.9 percent) and personal consumption expenditures (PCE) decreased $1.89 trillion (13.6 percent).Those are some crazy numbers. Americans got nearly $2 trillion in added income, but spent nearly $1.9 trillion less than they did in March. Let’s break down these two items separately.
First of all, in a month of unprecedented job loss, how did Americans get this massive amount of additional income as the amount of wages and salaries tanked? Mostly through the stimulus checks that went out from DC that month….and the unemployment that went to all of those newly jobless people.
Despite that increase in income, spending continued to collapse. The overall 2-month decline is staggering, a total of nearly $3 trillion on an annual basis. And while services continue to be the bulk of the consumption losses, it is noteworthy that we saw a reversal of March's increase in non-durable goods spending that happened as people stocked up on groceries and household items. So everything went down in April, with larger drops than March.
Digging into the stats further, you can see where grocery expenses fell back to their pre-COVID trend in February. You also can see that already-large March declines in spending on gasoline, autos, and clothing went further in the hole in April.
On the services side, housing, financial services and insurance spending has not subsidied, which belies how some industries aren't getting affected much at all.
On the flip side, look at how spending in the restaurant, hotel, and health care sectors have fallen apart as people stay home, and choose against having surgeries and other health services to lessen exposure to COVID-19.
The question going forward is twofold.
1. When does spending stop declining, and how much does it come back? Even if half of the losses in March and April come back over the next few months, we'd still be down nearly 10%. And a lot of businesses will not survive that level of lowered spending.
2. What happens if the stimulus checks and enhanced unemployment checks go away? You can see how that raised incomes in April, and likely kept a whole lot of people afloat. But they didn't spend that money, and if that source of income goes away without wages and salaries making up the difference, a lot of money is going to be taken out of the economy.
Which leads back to the problem in question 1. If incomes stay depressed, and spending stays depressed, how many of our millions of lost jobs actually come back in the last 8 months of 2020? Likely not as many as a lot of Wall Streeters want to believe.