By Sarah Chaney and Gwynn Guilford
U.S. consumer spending, the U.S. economy's main engine, fell by
a record 13.6% in April during coronavirus lockdowns, but there are
signs that purchasing is starting to pick up.
Personal income, which includes wages, interest and dividends,
increased 10.5% in April, the Commerce Department reported Friday.
The jump reflected a sharp rise in government payments through
federal rescue programs, primarily household stimulus payments of
$1,200. Unemployment insurance payments also rose sharply. Wages
and salaries were down 8% in April.
The April decline in spending was the steepest for records
tracing back to 1959. Weak April spending adds to the evidence that
the U.S. economy is in for a long, slow recovery. The coronavirus
pandemic and related lockdowns wiped out a decade of job gains
within a month.
As states start to reopen businesses and Americans return to
work, activity in some pockets of the economy appears to be perking
up -- or at least not deteriorating further -- after hitting rock
bottom in April.
"Some of the data suggests a stabilization," said Kathy
Bostjancic, chief U.S. financial economist at Oxford Economics.
"It's still overall a very tentative, slow recovery."
Camelia Kuhnen, finance professor at UNC-Kenan Flagler Business
School, said that workers in industries hard hit by the
coronavirus, like retail and tourism, will remain uncertain about
the economic outlook for a while, even with states reopening their
"It's going to probably lead these people to be very, very
careful with spending their money," Ms. Kuhnen said.
Americans' concerns about the path of the economy was a factor
behind a sharp rise in savings in April. The personal-saving rate,
which is the difference between disposable income and spending,
surged to 33% in April from 12.7% in March and 8.2% in February,
the month before widespread shutdowns.
Tracy Miller, 46, of Eagle, Colo., was in the market for buying
a new car this spring until the pandemic caused clients to cancel
bookings for her catering services. She lost her primary source of
income as a result.
"I definitely decided that big purchase was not going to happen
until I have some revenue," she said. Ms. Miller said she weathered
the crisis by deferring mortgage payments until July. She is also
drawing on unemployment benefits of about $800 a week through a
federal program for gig-economy and self-employed workers.
"I'm just trying to stay afloat and not spend a lot," she
Spending on long-lasting goods was down 17.3% last month, the
Commerce Department said Thursday. Outlays on nondurable goods,
like apparel, also fell steeply.
Economic uncertainty may be holding back an auto sales recovery
that began in early April. J.D. Power, the auto-industry research
company, reports that by the last week of April, sales were down
38% from its pre-virus forecast -- a big improvement from the 59%
sales deficit in the last week of March. However, the pace of
recovery has lost momentum in May, with sales still 25% lower than
the forecast in the week ending May 24.
Friday's Commerce Department report showed expanded unemployment
benefits, including $600 a week tacked on to the regular weekly
benefit amount, helped make up for lost wages and salaries last
"We're seeing consumers spend again because they're collecting
'employment plus' -- meaning unemployment [benefits] are more than
what they were making," said Marshal Cohen, chief analyst at the
NPD Group Inc., a market-information and advisory-services
Another significant boost to spending came from the
transfer-payment program in the federal rescue package, which
provided $1,200 to most adults and $500 per child. The government
had issued nearly 90 million "stimulus checks" by April 17, and an
additional 40 million payments the following week.
Mr. Cohen said it was then that spending on discretionary items
like fashion, footwear, beauty and apparel -- all of which had
shrunk by more than half versus the previous year -- began picking
Home improvement spending jumped then, too.
"Around the time the stimulus checks were released, people went
online and bought Wayfair en masse," said Michael Maloof, associate
director of consumer-brand insights at Earnest Research, which
tracks trends in credit-card purchases. The last weeks of April
also saw a big increase in consumers moving funds into investment
brokerage accounts, he said.
Spending on many services has recovered some since April, when
it fell more than 12%, according to the Commerce Department.
Restaurant sales bottomed out in mid-April, down by one-third from
2019, according to Earnest Research data, and have started to climb
again. However, fast-food and establishments more suited to online
sales have fared better than upscale eateries.
Slim Chickens, a Southern-style restaurant chain serving chicken
tenders, wings and salads, experienced a sharp drop in
year-over-year sales when dine-in services were forced to close in
The Fayetteville, Ark.,-based company began ramping up the
number of employees helping with drive-through and further invested
in its online ordering site. That helped drive up sales
significantly beginning in the second week of April, said Tom
Gordon, chief executive of the restaurant.
"We were able to weather the storm, and get back on the right
track," he said.
Write to Sarah Chaney at firstname.lastname@example.org and Gwynn Guilford
(END) Dow Jones Newswires
May 29, 2020 10:11 ET (14:11 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.