COVID-19

Consumer spending rises — for now

Justin Ho Jun 26, 2020
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Consumer spending in the United States shot up a record 8.2% in May, but it doesn't mean recovery is on the way. Spencer Platt/Getty Images
COVID-19

Consumer spending rises — for now

Justin Ho Jun 26, 2020
Heard on:
Consumer spending in the United States shot up a record 8.2% in May, but it doesn't mean recovery is on the way. Spencer Platt/Getty Images
HTML EMBED:
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The Commerce Department reported Friday consumer spending rose by over 8% in May — the biggest jump since records began in 1959. It sounds like some welcome news for the economy, right? Not so much.

It’s hard to get too excited about an 8% uptick in May after consumer spending dropped by almost 20% in March and April.

An increase was almost inevitable.

“You can’t look at an 8% jump in consumer spending and suggest you’re going to get that month after month,” said Liz Ann Sonders, chief investment strategist at Charles Schwab.

She said a big factor that’s been propping up spending is expanded unemployment benefits. More people are eligible, and they’re getting more money than they would have before the pandemic. 

We’re talking tens of billions of dollars.

“There is more money sloshing around out there by virtue of what Congress has done than if we didn’t have a pandemic,” Sonders said.

All of that money is set to disappear when those benefits expire next month, according to Josh Bivens, director of research at the Economic Policy Institute.

“That’s going to be a really sharp blow to personal income when that happens,” he said. After that, he continued, there’s another economic blow on the way.

State and local governments are about to draw up their budget plans for next year. And with tax revenue down and emergency spending up, they could slash 4 million jobs, according to a report this week from Moody’s Analytics.

Bivens said if that happens, the impact will spread far beyond the public sector.

“If a teacher loses their job, they cut back their spending,” he said. “They don’t go to restaurants, they don’t buy the new washing machine they need, they don’t buy other things.”

States could rehire those employees as they start to reopen and take in more sales taxes as people spend more. Economist Peter Orazem at Iowa State University said that’s not going very smoothly.

“It looks like a lot of states are now reversing some of that opening up, because they haven’t been able to contain the spread of the disease,” Orazem said.

And until they can contain the spread, he said, everyone will have more to worry about than whether consumers are spending.

COVID-19 Economy FAQs

Millions of Americans are unemployed, but businesses say they are having trouble hiring. Why?

This economic crisis is unusual compared to traditional recessions, according to Daniel Zhao, senior economist with Glassdoor. “Many workers are still sitting out of the labor force because of health concerns or child care needs, and that makes it tough to find workers regardless of what you’re doing with wages or benefits,” Zhao said. “An extra dollar an hour isn’t going to make a cashier with preexisting conditions feel that it’s safe to return to work.” This can be seen in the restaurant industry: Some workers have quit or are reluctant to apply because of COVID-19 concerns, low pay, meager benefits and the stress that comes with a fast-paced, demanding job. Restaurants have been willing to offer signing bonuses and temporary wage increases. One McDonald’s is even paying people $50 just to interview.

Could waiving patents increase the global supply of COVID-19 vaccines?

India and South Africa have introduced a proposal to temporarily suspend patents on COVID-19 vaccines. Backers of the plan say it would increase the supply of vaccines around the world by allowing more countries to produce them. Skeptics say it’s not that simple. There’s now enough supply in the U.S that any adult who wants a shot should be able to get one soon. That reality is years away for most other countries. More than 100 countries have backed the proposal to temporarily waive COVID-19 vaccine patents. The U.S isn’t one of them, but the White House has said it’s considering the idea.

Can businesses deny you entry if you don’t have a vaccine passport?

As more Americans get vaccinated against COVID-19 and the economy begins reopening, some businesses are requiring proof of vaccination to enter their premises. The concept of a vaccine passport has raised ethical questions about data privacy and potential discrimination against the unvaccinated. However, legal experts say businesses have the right to deny entrance to those who can’t show proof.

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