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Consumer spending and personal income fell. That’s bad news for the economy

Samantha Fields Dec 23, 2020
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Shoppers wearing protective masks are seen at Hudson Yards on Nov. 27, 2020, in New York. Jeenah Moon/Getty Images
COVID-19

Consumer spending and personal income fell. That’s bad news for the economy

Samantha Fields Dec 23, 2020
Heard on:
Shoppers wearing protective masks are seen at Hudson Yards on Nov. 27, 2020, in New York. Jeenah Moon/Getty Images
HTML EMBED:
COPY

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

What are the details of President Joe Biden’s coronavirus relief plan?

The $1.9 trillion plan would aim to speed up the vaccine rollout and provide financial help to individuals, states and local governments and businesses. Called the “American Rescue Plan,” the legislative proposal would meet Biden’s goal of administering 100 million vaccines by the 100th day of his administration, while advancing his objective of reopening most schools by the spring. It would also include $1,400 checks for most Americans. Get the rest of the specifics here.

What kind of help can small businesses get right now?

A new round of Paycheck Protection Program loans recently became available for pandemic-ravaged businesses. These loans don’t have to be paid back if rules are met. Right now, loans are open for first-time applicants. And the application has to go through community banking organizations — no big banks, for now, at least. This rollout is designed to help business owners who couldn’t get a PPP loan before.

What does the hiring situation in the U.S. look like as we enter the new year?

New data on job openings and postings provide a glimpse of what to expect in the job market in the coming weeks and months. This time of year typically sees a spike in hiring and job-search activity, says Jill Chapman with Insperity, a recruiting services firm. But that kind of optimistic planning for the future isn’t really the vibe these days. Job postings have been lagging on the job search site Indeed. Listings were down about 11% in December compared to a year earlier.

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