THE LONG GAME OF ECONOMIC RECOVERY
According to Deloitte Insights, U.S. consumer spending (adjusted for inflation) fell by 13.2 percent from March to April. The plunge was the sharpest monthly decline on record and touched virtually every area. Spending dropped by 16.7 percent for durable goods, by 15.5 percent for non-durable goods, and by 12.0 percent for services.
The reasons for the decrease in consumer spending may seem obvious but are rather nuanced, especially in light of the fact that, also in April, personal income in the U.S. actually grew at the fastest pace on record. Although wage income did shrink by 8.0 percent from March to April, total personal income, bolstered by emergency disbursements from the federal government, increased by 10.5 percent and real disposable income rose by 13.4 percent. That Americans, by and large, failed to dispose of this income during the month of April must mean one thing: They were mostly saving it. Essentially, all of that government assistance did not stimulate consumer spending, but that is understandable. After all, consumer spending was not the reason for those payments. The intent of the program was to provide needy Americans a financial safety net, which is clearly how they used it.
In addition to consumers’ sheer reticence to part with their money amid record unemployment claims creating uncertainty, the nosedive in spending may be mostly attributable to the plain inability to spend. As much of the economy remains constrained by shelter-in-place orders, many of the usual places to spend money—including restaurants, shops, movie theaters, sporting events, and tourist attractions—are simply unavailable.
Because consumer spending is, by far, the largest component of U.S. GDP, its weakening points to a dramatic drop in GDP for Q2. Fortunately, given Americans’ newfound savings and the budding return of economic activity (evidenced by Dawn Gilbertson’s report in USA TODAY this morning of the tremendously successful reopening of casinos in Las Vegas), a “V”-shaped recovery may be more likely than some have thought. The combination of pent-up demand and additional discretionary savings could provide a much needed lift to GDP for the balance of 2020 and bode well for 2021.
Of course, it must be said that any economic recovery will be rather empty without a broader social recovery from the heart-wrenching events in the country over the past week. The economy has slowly begun to return to normal but can be even better than it was or has ever been if all people can learn to be more patient, more understanding, and more empathetic with each other.