• Following a 4.4% month-on-month decrease in May (non-annualized), personal income fell by 1.1% in June as payments from federal economic recovery programs in response to the pandemic continued to decrease. Indeed, economic impact payments, which include one-time stimulus checks, fell to $40 billion, compared to $606 billion in May and $2.6 trillion in April. Similar to the previous month, this was partially offset by an increase in unemployment benefit payouts, up 8.5% from May to $1.4 trillion (from $1.3 trillion).
  • By contrast, spending advanced by 5.2%, bang on the consensus forecast. Goods expenditures continued to rebound, increasing by 5.7% following a healthy 14.2% jump in the previous month. The largest contribution came from spending on clothing and footwear. Likewise, services spending rose by 5.0% on the month, led by spending for health care and accommodation and food services.
  • With consumers continuing to open their wallets, the personal saving rate continued to ease, but remained at an elevated 19.0% in June (from 24.2% in May). The savings rate reached an all-time high of 33.5% in April (previously reported as 32.2%).
  • The PCE price deflator ticked up by 0.4% month-on-month (from 0.1% in May), in line with market expectations. On a year-on-year basis, the deflator was up 0.8% (from 0.5% in May). Prices for energy goods and services, which had represented a drag over the past 5 months, increased by 4.6% on the month, but remained 12.8% lower relative to a year ago. Excluding volatile food and energy items, the core PCE deflator rose by 0.2% month-on-month, the same as in May (0.9% year-on-year).

Key Implications

  • Consumer spending has now increased for two consecutive months, reflecting the pick-up in activity that followed as restrictive orders were eased across the country. However, even with the encouraging June and May reports, spending is still 6.6% below its February level, speaking to the severity of the crisis. Indeed, real GDP declined by an unprecedented 32.9% (annualized) in the second quarter, which was led by a 34.6% contraction in real personal consumption expenditures.
  • Looking ahead, the recovery in consumer spending is being threatened by the recent surge in coronavirus cases. While a return to full lockdown has been avoided thus far, restrictions on activity have been reintroduced in parts of the country. Already, high-frequency data on credit and debit card spending point to a pull-back in consumption in hard-hit states along the South and the West.
  • An additional hurdle- the Federal Pandemic Unemployment Compensation is set to expire today. As the pandemic broke out, the program helped millions of unemployed Americans stay afloat, putting a floor under their incomes by providing a supplementary $600 per week. Negotiations over the scope and scale of the next stimulus package are underway, but talks appear to have stalled in the last few days. While the next package will likely include additional help to households, the actual amount remains an area of contention. On the whole, expect reduced incomes and heightened uncertainty to weigh on spending in the near-term.


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