Weekly Economic Report
The personal income and spending report for May indicates that consumers collectively continued to save more than 100% of the stimulus that the government has issued via one-time checks and Federal excess unemployment benefits. As a result, they are now sitting on an extra $2.1 trillion dollars – or 10% of GDP – in spending power. The path of the recovery, profits and inflation all depend on when they decide to spend and how quickly corporations ramp up production – as opposed to prices – in response. More timely indicators, from Ray Chetty and his associates at Tracktherecovery.org, suggest that spending in Mid-June by lower income consumers, who are the primary recipients of the government’s transfers, has already rebounded to just -2.6% below a January baseline. However, higher income households are still -13% behind their January outlays. Some of this is regional, as incomes are higher in the less reopened areas. However, some reflects the fact that the owners of businesses, where low income households spent their windfall, remain more cautious. Chetty’s data indicate that while the rebound was relatively even in May, in June it has slowed generally -- and naturally by the most in the center of the country, where spending in some states is already all the way back to January levels. New COVID hotspots were already seeing renewed declines in spending in early June, as consumers self-regulate in reaction to the news flow. With cases rapidly rising in some areas, the US economy faces moderation for at least several weeks as every local area works to balance economic activity against the spread of the virus – including interstate quarantines. As more information becomes available, the adoption of best practices will lead to more uniform policies – and greater certainty for businesses and consumers.