Coronavirus depresses U.S. consumer spending in April
WASHINGTON (Reuters) – U.S. consumer spending suffered another month of record decline in April as the COVID-19 pandemic undercut demand, buttressing expectations that the economy could contract in the second quarter at its steepest pace since the Great Depression.
The Commerce Department said on Friday consumer spending, which accounts for more than two-thirds of U.S. economic activity, plunged 13.6% last month. That was the biggest drop since the government started tracking the series in 1959, and eclipsed the previous all-time decrease of 6.9% in March.
Economists polled by Reuters had forecast consumer spending would plummet 12.6% in April. Spending last month was depressed by a drop in outlays on healthcare as dental offices closed and hospitals postponed elective surgeries and non-emergency visits to focus on patients suffering from COVID-19, the respiratory illness caused by the novel coronavirus.
There were also decreases in spending at restaurants, which have shifted to delivery and pick-up service only, and hotels and motels. Spending on food and beverages fell in April.
The report added to dismal data on the labor market, manufacturing and the housing market in underscoring the horrific impact of the coronavirus crisis on the economy, with analysts warning it could take years for activity to fully recover from the devastating blow.
The economy contracted at a 5.0% annualized rate last quarter, the deepest pace of decline in gross domestic product since the fourth quarter of 2008. Consumer spending tumbled at a 6.8% rate, the sharpest drop since the second quarter of 1980. Economists expect GDP could collapse at as much as a 40% rate in the second quarter, a pace not seen since the 1930s.
But the economic slump could be close to bottoming as businesses reopen after shuttering in mid-March to slow the spread of COVID-19.
Inflation was weak in April, with the personal consumption expenditures (PCE) price index excluding the volatile food and energy components falling 0.4%. That was the weakest reading since September 2001 and followed an unchanged reading in March.
In the 12 months through April, the so-called core PCE price index rose 1.0%. That was the smallest gain since December 2010 and followed a 1.7% increase in March.
The core PCE index is the Federal Reserve’s preferred inflation measure. The U.S. central bank has a 2% inflation target.
The COVID-19 crisis boosted incomes for consumers in April as the government’s historic fiscal package worth nearly $3 trillion doled out $1,200 checks to millions of people and boosted unemployment benefits to cushion against the economic hardship wrought by the pandemic.
Personal income surged a record 10.5% last month after falling 2.2% in March. Wages dropped 8.0% last month.