By Josh Mitchell
U.S. household income fell sharply in late summer while worker
layoffs remained high, developments that could weigh on an
already-slowing recovery from the coronavirus pandemic.
Personal income -- what households received from salaries,
investments and government aid -- fell 2.7% in August as enhanced
unemployment checks shrank, the Commerce Department said Thursday.
Meanwhile, another 837,000 workers filed for unemployment
compensation last week after being recently laid off, the Labor
Department said. In total, nearly 12 million workers are receiving
unemployment compensation through regular state programs.
The economy up to now has rebounded more quickly than many
economists thought. But with federal aid fading and job growth
slowing, consumer spending -- the key driver of economic activity
in the U.S. -- could weaken. Economists believe the recovery is
entering into a modest and more grinding phase.
"There's clear evidence that growth is decelerating," said
Michael Gapen, chief U.S. economist at Barclays. He said, however,
that the risk of a double-dip recession is low, in large part
because households have built up their savings during the pandemic.
"There's still quite a bit of saving and liquidity out there. It's
likely to support spending for another few months."
Despite the drop in August, household income was 2% above its
level in February, the month before the pandemic hit the U.S.
Income has been boosted by one-time federal stimulus checks,
stock-market gains, and weekly unemployment insurance payments.
Consumers increased spending over the summer, as they made up
for purchases they put off during the spring and bought goods such
as bicycles, cars, groceries and home improvements. But the August
boost to spending of 1% was far smaller than earlier in the summer
when spending grew 9% in May, 7% in June and 2% in July. Spending
on services -- such as restaurant outings, hotels, and air travel
-- remains depressed.
The labor market's recovery also is showing signs of slowing
down since the summer. Employers through August have generated
about 11 million jobs, or about half of the 22 million lost at the
start of the pandemic, with the bulk of the gains coming in May
Economists surveyed by The Wall Street Journal project
September's jobs report, to be released Friday, will show a gain of
800,000 jobs and an 8.2% unemployment rate, down slightly from 8.4%
in the prior month.
The level of weekly jobless claims shows layoffs remain
persistent in some industries, and more companies announced cuts
this week. American Airlines Group Inc. and United Airlines
Holdings Inc. told employees they will go forward with more than
32,000 job cuts Thursday, after lawmakers were unable to agree on a
broad coronavirus-relief package. Insurer Allstate Corp. on
Wednesday said it planned to lay off 3,800 employees. Walt Disney
Co. on Wednesday announced permanent layoffs for 28,000 theme-park
workers who were previously on temporary furlough.
Still, economic readings suggest the economy rebounded quickly
in the third quarter that ended Wednesday after contracting sharply
in the second quarter.
Strong consumer spending helped propel the economy in the third
quarter that ended Wednesday. Economists estimate U.S. gross
domestic product -- the broadest measures of goods and services --
grew at an annual rate of 30% or more in July through
That would restore a big chunk of output lost in the spring when
the coronavirus outbreak prompted businesses to shut down. Output
fell at a 31% pace in the second quarter after a 5% drop in the
first, the Commerce Department said this week, the sharpest
quarterly contraction in the post-World War II era.
The economy is still digging out of a big hole. Few economists
expect the third quarter's robust growth to persist, in large part
because Americans' ability and willingness to spend may not hold
up. Forecasting firm IHS Markit projects growth in U.S. output to
slow to a 2.5% annual rate in the fourth quarter.
Spending has been supported by strong job growth after
pandemic-related closures ended and federal assistance to
The path ahead for the economy is uncertain. First, it isn't
known how much employers can expand or cut back on layoffs in the
absence of a coronavirus vaccine. Second, the effects of federal
aid to households are fading. Many households got up to $1,200 in
one-time payments under the Cares Act, along with an enhanced
weekly unemployment benefit that shrank in August and is set to
expire this month.
From late March through July, unemployed Americans received $600
a week -- or $2,400 a month -- on top of their normal jobless
benefits, under federal stimulus in the Cares Act. Under an
executive action by President Trump, unemployed workers received an
additional $300 a week for no more than six weeks starting in the
week ended Aug. 1.
If consumers cut spending in response to the reduction in their
income, businesses from restaurants to bike repair shops to doctors
could take a hit on sales, denting economic growth.
Also, much of the spending in the summer may have reflected
"pent-up demand" -- purchases that households had put off in the
spring. This includes visits to the dentist, home repairs and
clothing purchases. Now that many households are caught up on those
purchases, spending may revert to more-normal levels this
Hannah Purdy, a 28-year-old from Boise, Idaho, and her husband
cut spending in the spring out of fear of losing their jobs at a
hospital, where she is a revenue-cycle analyst and he is a
mechanical engineer. When that didn't happen, they started
increasing their spending this summer. They remodeled their
basement and, last month, installed hardwood flooring.
Now, they say, their spending habits have reverted to
"We are both feeling a little bit better about the economy," she
said. "I don't necessarily feel better about the pandemic but I
feel better about our ability to figure out how to operate
effectively around the realm of a pandemic."
Their disposable income has actually increased this year. After
the Federal Reserve cut interest rates, the couple refinanced their
mortgage at a lower rate, saving them $300 a month. On top of that,
they say, real estate websites indicate that their home has
increased in value, so they are feeling wealthier.
This fall, she plans to take her first trip since March -- to
Tennessee to visit her parents. She said that overall, though, they
remain cautious and are pocketing much of their income rather than
One positive sign: Households have gained confidence in the
recovery. The Conference Board, a private research group, said this
week its index of consumer confidence surged in September to the
highest level since March. Higher confidence makes it more likely
that consumers will spend rather than save -- and boost the overall
--Eric Morath contributed to this article.
Write to Josh Mitchell at firstname.lastname@example.org
(END) Dow Jones Newswires
October 01, 2020 14:48 ET (18:48 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.