U.S. incomes fell more than expected in June as the effects of the government’s one-time stimulus checks dissipated, though an increase in unemployment-insurance payments pointed to the importance of expiring federal relief.
Personal incomes declined 1.1 per cent from the prior month, a Commerce Department report showed Friday. The median estimate in a Bloomberg survey of economists called for a 0.6 per cent drop. Consumer spending increased 5.6 per cent in June, after jumping by the most on record a month earlier.
While the income decline reflected the continued unwinding of April’s sharp gain from one-time stimulus, unemployment-insurance payments actually increased in June by an annualized $111 billion -- likely reflecting states working through backlogs of applications, even though joblessness has fallen. That increase, stemming mainly from the federal government’s supplemental $600 in weekly jobless benefits, highlights the importance of the payments that expire today, with Congress failing to reach an agreement on additional aid.
A separate report Friday showed consumer sentiment deteriorated in late July, in part because of the impasse on Capitol Hill as well as the increase in virus cases. The University of Michigan’s final gauge for the month slid to 72.5 from a preliminary reading of 73.2.
At the same time, a gauge of Chicago-area manufacturing expanded this month for the first time since May of last year as orders and production moved back into expansion territory.
The Commerce Department’s report showed wages and salaries rose 2.2 per cent, reflecting rehiring as more businesses reopened across the country, though such compensation remained well below pre-pandemic levels.
The pace of the economic rebound appears to be cooling amid a resurgence in virus cases, and only 7.5 million of the 22 million jobs lost because of the pandemic had come back as of June. If re-hiring fails to come back quickly, a steep drop-off in federal support for the jobless could have significant implications both for incomes and ultimately personal consumption, the lifeblood of the U.S. economy, in the coming months.
What Bloomberg’s Economists Say
“Bloomberg Economics expects that a lengthy period of uncertainty and an incomplete jobs recovery will result in the net benefit of an extension overriding concerns about it reducing households’ willingness to return to work.”
-- Andrew Husby and Eliza Winger
Even though consumer spending posted a record increase in May and rose again in June, the level of spending remains below pre-pandemic levels. A Commerce Department report out Thursday showed inflation-adjusted personal spending fell at a record 34.6 per cent annualized rate in the second quarter, with outlays for services plummeting at a 43.5 per cent pace.
Real spending climbed 5.2 per cent in June after surging 8.4 per cent a month earlier. The increase in outlays last month was broad-based, reflecting an 8.8 per cent jump in durable goods and a 5 per cent pickup in services.
The personal savings rate, which had surged to a record in April as a result of the rise in government social benefits, fell for a second month to 19 per cent from 24.2 per cent.
The gauge of consumer prices that the Federal Reserve officially uses for its target rose 0.8 per cent in June from a year earlier, well below the central bank’s 2 per cent goal. The core price index, which excludes more-volatile food and energy costs, increased 0.9 per cent.
--With assistance from Ana Monteiro.