By Amara Omeokwe
Households likely boosted spending last month as incomes rose,
forecasters say, another sign the U.S. economy continued recovering
into the fall from the damage inflicted by the coronavirus
pandemic.
Economists surveyed by The Wall Street Journal expect the
Commerce Department to report Friday that personal-consumption
expenditures -- a measure of household spending on goods and
services -- rose 1% in September, the same increase as in the
previous month. Household spending has been rising after a steep
drop off earlier in the pandemic, although the pace of gains slowed
over the summer and into the fall.
Personal income -- a measure of what households receive from
wages and salaries, government aid and investments -- is expected
to rise 0.5% in September, after a sharp decline in August.
A moderate rebound in personal income would likely reflect the
impact of a federal supplement to state unemployment benefits that
provides recipients with an extra $300 a week, said Richard Moody,
chief economist at Regions Financial Corp. The Commerce Department
said August's drop in personal income was due mostly to the end of
a separate program that provided a $600 weekly bonus to recipients
of unemployment benefits.
The $300 extra in benefits "should make up some of the decline
we saw in August -- certainly not all of it because it's a much
smaller weekly payment," Mr. Moody said.
Government stimulus to help people weather the pandemic provided
a financial cushion to households that has propelled spending in
recent months, said Lindsey Piegza, chief economist at Stifel
Nicolaus & Co. For example, the federal government allowed for
deferred payments on certain types of student loans and
mortgages.
"We see that consumers are still spending. In many cases, they
are spending differently, meaning the composition of goods and
services in their basket are different now," Ms. Piegza said.
Companies such as Mattel Inc. and Chipotle Mexican Grill Inc.
this month posted strong quarterly sales figures, reflecting
American households' increased interest during the pandemic in
at-home entertainment and food that can be ordered online. Orders
for long-lasting factory goods rose for the fifth straight month in
September amid strong demand for household furnishings and
vehicles.
Carter Rabasa, a self-employed events planner from Seattle, said
he and his family over the course of the pandemic had purchased a
$1,500 pergola for their backyard, along with making other
improvements to their garden area. He said his family had also
boosted spending on things such as takeout food.
"We think of it as a sort of pandemic relief. The kids are
having this dreadful remote school experience. We're just trying to
think of things that will brighten the day and those things cost
money," Mr. Rabasa said.
U.S. gross domestic product in the third quarter rose a record
7.4% compared with the second quarter, the Commerce Department said
Thursday, as the economy rebounded with the easing of lockdowns and
other restrictions on business and consumer activity.
Consumer spending contributed strongly to growth, increasing at
a 40.7% annual rate in the third quarter.
Meanwhile, the Labor Department reported initial jobless claims,
a proxy for layoffs, fell by 40,000 to 751,000 in the week ended
Oct. 24. That was the lowest level of claims since mid-March,
although they remained historically high.
Robert Frick, corporate economist at the Navy Federal Credit
Union, said economic uncertainties linger, amid a resurgence in
coronavirus infections and unevenness in the U.S. labor market,
with signs that some layoffs during the pandemic are becoming
permanent job losses.
As a result of pandemic-related woes, companies ranging from
Boeing Co. to Ralph Lauren Corp. have recently announced job cuts.
Boeing said it expects to reduce its head count by another 11,000,
building on previously announced cuts to its workforce.
"We're in a precarious place. The twin variables, Covid and
stimulus, are even more important than they were, say, a month or
two ago," Mr. Frick said. Job growth "seems to be slowing down more
than people anticipated, so we need stimulus."
Further federal coronavirus stimulus is unlikely for now,
however. Despite weeks of negotiations, Washington lawmakers and
Trump administration officials haven't reached an agreement on
providing more aid.
Several federal coronavirus aid initiatives have already ended
or are winding down. A spokesperson for the Federal Emergency
Management Agency said 54 states and territories have been awarded
$42 billion to provide the $300 weekly supplement to recipients of
state unemployment benefits. President Trump in August issued an
executive action allowing states to receive $44 billion in FEMA
funds to issue the enhanced benefits, meaning the agency has
distributed most of the available funds.
Meanwhile, Americans' short-term outlook on economic conditions
worsened this month, weighing on an index of consumer confidence
from data firm The Conference Board.
Valarie Black, a single mother of two from Harrisburg, Pa., said
she was furloughed from her job as a hotel sales manager in March
and ultimately laid off in June. Since then, Ms. Black, 43 years
old, said she had been collecting unemployment benefits and
searching for work. Finally this month, as her unemployment
benefits expired, she accepted a sales position at a car
dealership. The pay is commission-based.
"At this point, it's better than making nothing. I know I'm a
hustler and I know a lot of people in the area, so I'll just do
what I can to sell them cars," Ms. Black said.
But she said she is being conservative with spending.
"At this time, it's a hold on everything until Christmas comes
around for my kids," she said.
Write to Amara Omeokwe at amara.omeokwe@wsj.com
(END) Dow Jones Newswires
October 30, 2020 05:44 ET (09:44 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.