U.S. Personal Spending Down 13.6% In April

Andrew Cummings
May 29, 2020

Economists surveyed by Bloomberg expected a 12.8% decline.

The savings growth comes as more than 40 million USA adults filed for unemployment insurance since the start of the pandemic as state economies around the country established coronavirus restrictions to slow the virus.

Personal consumption spending tumbled 13.6 percent in April, marking the largest drop since the feds started tracking the figure in 1959, the US Department of Commerce said Friday.

The US savings rate, however, soared to record heights as Americans hoarded more money than ever before.


Incomes increased a record 10.5%, the report showed.

The Covid-19 crisis boosted incomes for consumers in April as the government's historic fiscal package worth almost US$3 trillion (RM13 trillion) doled out US$1,200 checks to millions of people and boosted unemployment benefits to cushion against the economic hardship wrought by the pandemic. Personal spending is predicted to tumble 12.6% in April after the March 7.5% decline.

The drop comes despite a surge in personal income. But business closures weighed on wages, which dropped 8.0% in April after falling 3.5% in March. The median economist estimate called for a 5.9% decline.

Consumer spending accounts for more than two-thirds of US economic activity, and that plunge supports expectations that the economy could shrink in the second quarter at its steepest pace since the Great Depression.


Another reason for the spending drop may be rising joblessness. That was the weakest reading since September 2001 and followed an unchanged reading in March.

"Core PCE prices are expected to slip 0.3% in April while the annual core PCE rate is forecast to drop from 1.7% in March to 1.1% in April". It's the slowest advance in the index since 1961 and falls below the central bank's 2% target.

"The core PCE decline reflects some big collapses in the prices of a limited number of the most-affected services", said Andrew Hunter, a senior USA economist at Capital Economics. "It is not evidence of a widespread Japanese-style deflation ensnaring America".


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