Not surprisingly, household outlays in the US tumbled the most on record in April, a month that will live in infamy as perhaps the single most acute stretch for the world’s largest economy in history.
Personal spending plunged a jaw-dropping 13.6% for the month, worse than consensus expected, but not nearly as bad as the most dour projection from 65 economists, one of whom saw a 20% drop in the offing.
Data out earlier this month showed retail sales collapsed 16.4% in April, nearly double the previous month’s historic collapse. As ever, you should note that these prints have no historical precedent of any kind.
Incomes rose 10.5%, the most on record, defying expectations for a 6% decline. The jump was, of course, related to relief efforts from Washington.
“The increase in personal income in April primarily reflected an increase in government social benefits to persons as payments were made to individuals from federal economic recovery programs in response to the COVID-19 pandemic”, the BEA said.
The personal savings rate surged to a record 33%.
As Richard Koo wrote this month, the pandemic will “have many irreversible impacts on the economy and society”, but none perhaps greater (from a macroeconomic perspective, anyway), than a possible change in attitudes towards savings.
This crisis laid bare the extent to which a disconcertingly large percentage of households and businesses were one disruption away from oblivion. We knew this was true in a narrow sense. How many times, for example, have you seen an article lamenting the number of Americans who are “one major household repair away from being broke”? Another popular headline reads “One in four Americans have just XYZ dollars in savings”.
But this crisis has shown us that the entire system is at risk of evaporating and ceasing forever to exist in the event the economy has to be shut down for a single month.
“If people who placed relatively little importance on savings until now decide that they need to set aside more money for a rainy day, we could experience the same sort of private-sector savings surplus seen during a balance sheet recession”, Koo remarked.
He also cautioned that “a savings surplus in the private sector means that no matter how much liquidity the central bank supplies, those funds will not leave the financial institutions because the private sector is in aggregate a net saver”.
Oh, and if you’re wondering how wages and salaries held up (i.e., if you want to look beyond the headline income number attributable to government assistance), they didn’t – hold up that is.
As Richard Koo wrote this month, the pandemic will “have many irreversible impacts on the economy and society,” but none perhaps greater (from a macroeconomic perspective, anyway) than a possible change in attitudes towards savings.
Who else is of the mind that that would be a good thing? It was just such a shift in mindset during the ’30 and first half of the ’40s that laid the foundation for the prosperity of the ’50s and ’60s (along with the arrival of a lot of babies).
I would argue it took a LOT more than change in mindset to lay the foundation for prosperity in that period…
Just our economy becoming Japanese. When consumers are let out they will flock to stores just for a change of scenery. Not having cheap Chinese goods will be inflationary.
There was not all that much to buy in the 30s and 40s. Electricity and roads laid the groundwork for the 40s and 50s although some thought of War as boosting the economy. Innovation from war helps, but cost in lives is high.
Also war kills too many geniuses and innovators.
The way I have heard it from people who were not wealthy and actually lived through the Depression, is that there were lots of goods available to buy, but no money to buy them with.