Consumer spending and personal income fell. That’s bad news for the economy
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Wednesday got started with some sobering news about the state of this economy, courtesy of the Commerce Department. Consumer spending fell nearly half a percent last month. That’s the first time it’s fallen since April, back in the early days of the pandemic.
That’s not terribly surprising, given that at the same time, personal income also fell by a little over 1%.
That’s the third decline in four months, and there’s no mystery here, either — government aid has been keeping millions of people afloat and government aid is running out. So what does that really mean going forward?
This time of year is normally when people spend more money.
Carl Tannenbaum, chief economist at Northern Trust, said the fact that personal income and consumer spending dropped in November is a bad omen.
“It does give a pretty good sense that households are not going into the new year in very strong shape, and adds to the urgency around the negotiations in Washington,” he said.
Consumer spending crashed in March and April, but then bounced most of the way back largely thanks to government aid.
“Back in April, after the CARES Act, there was a huge pop in personal income,” said Ted Rossman, an industry analyst at CreditCards.com. “And a lot of that did trickle down to other sectors of the economy.”
He said over the summer, a lot of people felt like things were getting better. But now?
“Maybe those unemployment checks have dried up, they’ve long since spent their first stimulus check. Maybe they’re not able to go back to work,” Rossman said.
And people are nervous after months of uncertainty over whether the federal government would provide more relief, said Tim Quinlan, senior economist at Wells Fargo.
“It takes a long time to build up consumer confidence and not so long to disrupt it or to shake it,” he said.
And when people have less confidence and income, they’re less likely to spend their money. Tannenbaum at Northern Trust said that is a bad combination.
“The spending done by households accounts for almost 70% of our annual gross domestic product, our national income,” he said.
And if it’s not recovering, Tannenbaum said, neither will the economy.
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 continues 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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