Saturday, August 1, 2020

More spending in June is still a lot lower than we had. And how can it get better?

We already got an indication about what the consumption and income figures might look like for America with Thursday's historic decline in GDP. But we got to see the monthly changes in Friday's income and spending report from the Bureau of Economic Analysis, and tells a lot.

On the surface, it looks like we continued to recover from the record loss in economic activity in June. The decline in income came after major increases due to government stimulus checks in previous months, so more money is still going into Americans' pockets than we saw before COVID-19 broke out.
Personal income decreased $222.8 billion(1.1percent)in June according to estimates released today by the Bureau of Economic Analysis (tables 3 and 5). Disposable personal income(DPI) decreased $255.3 billion (1.4 percent)and personal consumption expenditures(PCE) increased $737.7 billion (5.6 percent)....

The decrease in personal income in June was more than accounted for by a decrease in government social benefits to persons as payments made to individuals from federal economic recovery programs in response to the COVID-19 pandemic continued, but at a lower level than in May(table 3).
As you can see, the income source that has the biggest jump is in unemployment payments, both due to the tens of millions that became unemployed, and because of the enhanced unemployment benefits in the CARES Act.

On the down side, note that wages and salaries haven't come close to recovering what was lost in March and April, with a gap of more than $600 billion still existing on an annual basis. And now the enhanced unemployment benefits that are keeping incomes up are going away, with no real jobs to replace them. Oh boy.

Consumption tells a similar story to wages and salaries, but it's an uneven story. If you only concentrated on the goods side of the economy, you'd think things were going very well, as cars, recreational vehicles have had a boom on recent months, groceries are still being bought at levels above where they were in February, and even beaten-up businesses like apparel seem to have recovered.

But the continued decline in sales for gasoline and other energy products leads into the overall drop in consumption of services, which is a direct result of more people not willing to go out as often in the time of COVID-19, and the related shutdowns of businesses. Service spending was still down by more than $1 trillion on an annual basis vs February's figures, and this is before July's resurgence of COVID-19.

You can see that the breakout of COVID has kept many people from going to doctors and dentists for everyday reasons, which depresses spending in that sector. And COVID is still keeping recreation businesses (sports, live music shows, movies, etc), bars, restaurants and hotels at depressed levels.

The workers in those businesses also continue to suffer from significant job losses, and if spending doesn't pick up in those areas, those temporary losses are going to become permanent, as we already starting to see with several Milwaukee hotels and with contractors for a group of Middleton hotels.

Also notice that the only services seeing increases in spending are in housing, finance and insurance. Along with the increase in car sales, you can see the effect of rock-bottom interest rates on people who have money to spend on big purchases. But it's the everyday expenses that are getting hit, and until COVID gets brought under control, I can't see where that gets much better than we saw in a "reopened" June.

And now we're going to see some of these income sources get cut off with no real wage or salary growth to replace it (and in fact, that number might be more likely to go DOWN vs go up, if the unemployment claims information is an indication)? July could be the start of a plateau at a much lower level of economic activity, which will sure feel like a recession for a lot of Americans.

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