Spending by U.S. consumers fell a record 13.6% in April as the COVID-19 pandemic slashed demand for goods and services.
The Labor Department reported on Friday that personal consumption expenditures fell $1.89 trillion last month while personal outlays dropped $1.91 trillion.
Real personal consumption expenditures decreased 13.2%. The PCE price index fell 0.5%; excluding food and energy, the PCE price index decreased 0.4%.
Labor said the decline in real PCE reflected a $758.3 billion decrease in spending for goods and a $943.3 billion decrease in spending for services.
“Within goods, decreases in all subcomponents were led by a decrease in food and beverages. Within services, the largest contributors to the decrease were spending for healthcare as well as food services and accommodations,” Labor said.
Personal income, however, rose 10.5%, or $1.97 trillion, in April. Disposable personal income increased 12.9%, or $2.13 trillion, while real disposable personal income increased 13.4%.
“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,” Labor said in a release.
Personal savings totaled $6.15 trillion in April as the personal savings rate was 33.0%.
And sentiment remained cautious among consumers in May.
The University of Michigan’s consumer sentiment index inched up to 72.3 in May, from 71.8 in April. The index stood at 100.0 in May 2019.
The survey’s current economic conditions index rose to 82.3 in May from 74.3 in April while the index of consumer expectations dropped to 65.9 from 70.1.
“Consumer sentiment has remained largely unchanged during the past two months, with the final May estimate just a half index point above the April reading,” said Richard Curtin, the survey’s chief economist. “The CARES relief checks and higher unemployment payments have helped to stem economic hardship, but those programs have not acted to stimulate discretionary spending due to uncertainty about the future course of the pandemic.”
He said consumers were beginning to become a bit more optimistic.
“It should not be surprising that a growing number of consumers expected the economy to improve from its recent standstill, or that the majority still thought conditions in the economy would remain unfavorable in the year ahead,” he said.
However he said there would be changes ahead.
“The gap between economic growth and the current performance of the economy is likely to grow significantly when the disastrous second quarter GDP is announced,” Curtin said. “More widespread price discounting as well as low interest rates have helped to improve buying plans, but those plans still remain well below the levels recorded three months ago. Adding to consumers’ concerns about a significant expected drop in income growth, year-ahead inflation expectations rose sharply, putting extra pressure on consumers’ abilities to maintain their living standards.”
Meanwhile, business confidence remained low with demand continuing to fall.
After the largest fall on record in April, the Chicago Business Barometer, produced with MNI, fell to 32.3 in May. The index now stands at the lowest level since March 1982.
The new orders index dropped to its lowest level since July 1980. Among the other main indexes, order backlogs and supplier deliveries saw the largest declines.
Production fell in May after dropping sharply in April, leaving the index at a 40-year low as firms continued to report temporary shutdowns.
The order backlogs saw the biggest drop, falling 28.0% to its lowest level since March 2009, the ninth straight reading under 50.
Employment rebounded after April’s drop. However, MNI said anecdotal evidence was mixed, with some firms stating they had to lay off staff or reduce salaries while others were trying to find new hires.
Companies noted higher prices for essential goods and transportation, MNI reported.
This month’s special question was “How long do you expect COVID-19 to impact your business plans?”
A majority, 27.1%, said they expected the virus to have an impact for six to nine months, 22.9% said nine to 12 months, 20.8% said three to six months, 18.8% said more than one year, and 10.4% said less than three months.