Can We Really Trust Consumer Spending to Save the Economy?

778
0

We’ve all been looking forward to this for months.

Vaccines are widely available, mask orders are ending and the country is starting to reopen. This is what every American has been waiting for: the return to some sort of normalcy where restaurants and bars are crowded again, movie nights out are back on the table and concert tours resume after more than a year off. Americans itching to spend again after the pandemic would help pull our economy out of the doldroms.

At least that was the plan. Here’s the bummer…

Comsumer spending was flat in May.

According to new data released by the Commerce Department last week, incomes dipped slightly for the second month in a row in May and spending was flat on a month-to-month basis. Although spending on services (things like health care, financial services, insurance, cable and internet service, etc) jumped $74.3 billion in the month, spending on goods dropped by a nearly equal $71.5 billion.

Normally, a flat month isn’t that bad, but May’s result came after rapid surges in consumer spending in March (when it jumped 5% thanks to those $1,400 stimulus payments) and April.

Let’s hear from an expert: “The great consumer spending rotation gathered steam in May as households shunned now-expensive goods in favor of once-familiar services.” — Lydia Boussour, Oxford Economics.

Incomes are shakey. The fact of the matter is that consumer spending is only going to go so far when people aren’t making enough money to pay for their needs, and the Commerce Department also reported that incomes also fell by 2% in May after plunging 13.1% in April.

Short story: Stimulus payments can only do so much and for so long.

The good news is that wages and salaries increase a little (0.8%) last month. Not much, but at least it’s a positive sign that employment is growing.

What’s the big picture? Simply put, things are better than they were but not as good as they need to be.

As Gus Faucher, chief economist at PNC Financial, said last week: “Consumers have used their stimulus payments to buy big-ticket items like cars, appliances and building materials. Now that the economy is reopening, they are shifting their spending to services that they have not been able to enjoy during the pandemic like dining out and travel.” 

While that’s not a bad thing, it just means that the lower amount of available spending that’s sloshing around the economy is not yet enough to cover everything. Some months we buy goods, some months we go on vacation. A heathy economy is one where we can do both whenever we want. 

We’re not out of the woods yet.

Previous articleHere’s What You Need to Know About the Phased-Income Approach to Retirement
Next articleThe Personal Finance Industry is Aging Out. What Does That Mean for Your Retirement?

LEAVE A REPLY

Please enter your comment!
Please enter your name here