US Consumers Running out of Money Once Again as Stimulus Programs Near End

It appears that despite record stimulus spending by the Federal Reserve and copious government bailouts, it did not pull the US economy out of its deeply troubled recession.

According to Commerce Department data released on Wednesday, the US economy contracted by a 31.4% annualized rate in the second quarter of 2020 – the steepest drop on records that date back to 1947. Although estimates last month called for a 31.7% drop. To put the dire state of the US economy into context, the last time a quarterly drop of such a magnitude occurred was in 1958, when the economy contracted by 10% on an annualized basis.

With respect to the third quarter which just ended in September, the GDP results will not be made public until October 29, which is only a mere five days before the US presidential election. Although US President Donald Trump is anticipating an economic rebound to factor into a potential second term, a number of economists are becoming increasingly pessimistic about a surge in economic growth. Moreover, the US economy could very easily plunge into an even deeper recession if Congress fails to arrive at another stimulus bill, or the pandemic resurfaces into a third wave.

Indeed, the lack of a stimulus bill is certainly having a toll on US consumers, which have grown reliant on the $600 per-week benefit top-up that expired at the end of July. Although weekly initial jobless claims have fallen below 1 million for several consecutive weeks in a row now, there are still millions of Americans that are dependent on the government’s two other stimulus pillars, the Pandemic Unemployment Assistance (PUA) and the Pandemic Emergency Unemployment Compensation (PEUC), which are both set to expire at the end of December.

In the meantime, August data shows that personal income growth dropped by only 2.7%, while personal income declined by 2.7%. The decline in income was attributed to the elimination of the $600 weekly top-up, but was then partially offset by a slight improvement in the labour market, which caused salaries and wages to rise by 1.3% in August. On the other hand, personal spending also rose above expectations, increasing by 1%. Alas, a rise in spending may seem like an optimistic variable in a potential economic recovery, but there is just one problem: a decline in personal income paired with increased consumption means that many Americans have been burning through their savings.

Indeed, according to BEA data the month of August saw annualized savings fall by $723 billion to $2.435 trillion, which is the lowest it has been since the beginning of the pandemic in March. Simultaneously, the personal savings rate crumbled by 17.7%, which suggests that the 60% in savings that was accumulated following the CARES Act stimulus has all been burned through. This means that unless Congress introduces yet another stimulus bill, and soon, US consumption will likely once again collapse, and further push the US economy into the dark abyss.


Information for this briefing was found via the Commerce Department and the BEA. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

Video Articles

The Goal is Gold Production as Soon as Possible! | Gordon Robb – ESGOLD Corp.

Snowline Gold: The Multi Billion Dollar Valley PEA

Euro Sun: Rovina Copper-Gold Project Secures Some Major Funding

Recommended

Antimony Resources Drills 4.17% Antimony Over 7.4 Metres At Bald Hill

ESGold To Expand Mine Building At Montauban In Advance Of Gold & Silver Production

Related News

Incoming Unemployment Data Paints Grim Picture of Economic Situation in the US

It is nearing a month since national lockdowns and social distancing measures were put in...

Sunday, April 26, 2020, 02:00:00 PM

Troubled Times Ahead for Europe: Unemployment Levels Continue to Increase, Inflation Enters Negative Territory

Although much of Europe has been lifting restrictions and reopening economies in hopes of spurring...

Wednesday, September 2, 2020, 05:31:00 PM

State Unemployment Benefits System Outsmarted by Foreign Scammers, Unemployed Americans

When the coronavirus suddenly impaired almost the entirety of the US economy, Congress had to...

Tuesday, June 2, 2020, 04:14:00 PM

US Labour Market Recovery Receding as Weekly Jobless Claims Surpass Estimates

It appears that recent jobless claims painfully missed optimistic estimates, suggesting that the US labour...

Thursday, September 10, 2020, 02:00:33 PM

US Economy Unexpectedly Adds Another 339K Jobs in May

The latest jobs report for May shows a robust US economy, with a surge in...

Friday, June 2, 2023, 09:16:25 AM