US consumer spending plunged the most ever last month as savings spiked to a record high
by Carmen Reinicke- US consumer spending slumped by 13.6% in April, the largest drop on record, the Commerce Department reported Friday. Economists surveyed by Bloomberg had expected a 12.8% decline.
- Meanwhile, the personal savings rate surged to a record 33% in April from 12.7% in March as people held on to cash.
- Incomes also increased by 10.5%, reflecting the $3 trillion worth of government social benefits paid during the month.
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US consumer spending dropped by the most on record in April as the coronavirus pandemic kept businesses closed and people at home.
Household outlays slumped by 13.6% from March, the largest drop since 1959, the Commerce Department reported Friday. Economists surveyed by Bloomberg had expected a 12.8% decline.
A sharp decrease in spending could have a devastating effect on the US economy, as consumption is responsible for roughly two-thirds of gross domestic product. Adjusted for inflation, spending fell by a record 13.2% in April, supporting forecasts of a record GDP drop in the second quarter. The decline was driven by slumps in spending on food and beverages, healthcare, hotels, and restaurants.
The sharp drop in spending pushed household incomes and the personal savings rate up to records as well.
Incomes increased by a record 10.5%; the median economist estimate was a 5.9% decline. The jump reflected the federal economic-recovery payments distributed under the Cares Act, the department said — an annualized $3 trillion worth of government social benefits was paid in April, up from $70.2 billion in March.
The personal savings rate — how much people save as a percentage of disposable income — also surged to a record high of 33% from 12.7% as Americans socked away cash to brace for an economic downturn that has rivaled the Great Depression. The drop in spending fueled the jump.
"This is the basis for believing that spending will rebound strongly as lockdowns are eased, but it will also make it easier for Republicans in the Senate to keep pushing back on the idea of further stimulus, for a while at least," Ian Shepherdson, the chief economist at Pantheon Macroeconomics, said in a Friday note.
It's likely that stimulus payments and unemployment benefits will tick up this month while compensation drops, leading to another jump in overall incomes, Shepherdson said.
The PCE price index, the Federal Reserve's preferred gauge of consumer prices, gained 0.5% on the year. It was the slowest advance in the index since 1961 and fell below the central bank's 2% target. The core price index, which excludes energy and food costs, gained 1%, the smallest jump since 2011.