The United States savings rate stood at 23.2% in May, compared to 32.2% in April.
So far so good. Many economic indicators recorded sharp falls in April, the height of the blockade, and recovered in May, which made the data very choppy. It seems that consumer spending also fits that pattern. That’s important because about two-thirds of America’s economic growth is fueled by consumer spending.
But the recovery story is not that simple.
While spending recovered, personal income fell 4.2% and disposable income decreased 4.9%.
That decline was partially offset by more unemployment claims being paid in May, the BEA said. Under the CARES Act, the government expanded unemployment benefits, including adding $ 600 per week. But so far, the additional cash has only to be paid until the end of July.
This means that consumers, the primary driver of economic growth in the United States, will remain limited in their spending. That’s why “cutting off political support that helps households keep spending is a terrible idea, both for the well-being of these households and for macroeconomic stabilization,” said Josh Bivens, director of research at the Institute for Economic Policy.
Bivens believes that extending the additional $ 600 in weekly unemployment benefits through the middle of next year “would provide an average quarterly boost to gross domestic product of 3.7% and the employment of 5.1 million workers.”
Meanwhile, the University of Michigan reported that consumer sentiment declined in the second half of June. Even though sentiment had increased, consumers believe that economic growth is more closely related to fighting the virus.
“Unfortunately, confidence in the government’s economic policies has dropped in the June poll to its lowest level since Trump took office,” said Richard Curtin, chief economist for the consumer survey. “The need for new aid programs is urgent and will be best achieved before national elections dominate the debate.”
Sentiment improved more among survey participants in the Northeast, where a slower reopening is expected to lead to fewer new infections.