April Core PCE, Personal Spending and Income Preview: All falling in tandem

Daniel Fowler
May 30, 2020

US consumer spending plunged in April by the most on record as widespread government lockdowns largely prevented Americans from spending federal stimulus payments in the month.

The Commerce Department said today consumer spending, which accounts for more than two-thirds of U.S. economic activity, plunged 13.6 per cent last month. The median economist estimate called for a 5.9% decline.

The April decline was the steepest for records tracing back to 1959. Personal spending is predicted to tumble 12.6% in April after the March 7.5% decline.

But the rise in income temporarily masks the fact that people are in a fragile economic position, said Michelle Meyer, head of USA economics at Bank of America Corp. "The reason the numbers look so extreme this month was because of the one-time checks that were sent out - which won't be continuing". The rate, which tracks how much people save as a percentage of their disposable income, is the highest since the department started tracking savings in the 1960s and almost double the previous record of about 17 percent, set in 1975.

U.S. consumer spending took a record nosedive last month as Americans hoarded cash during the coronavirus pandemic, new data show. Spending by Americans decreased by $1.89 trillion.

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The savings growth comes as more than 40 million USA adults filed for unemployment insurance since the start of the pandemic as state economies around the country established coronavirus restrictions to slow the virus. The yield on 10-year Treasuries sank.

The core PCE index is the Federal Reserve's preferred inflation measure.

In the 12 months through April, the so-called core PCE price index rose 1.0%, the smallest gain since December 2010 which followed a 1.7% increase in March. Without the government money, income would have declined 6.3% with business closures pushing wages down 8.0%. Advertisement The sharp drop in spending pushed household incomes and the personal savings rate up to records as well. A survey on Friday showed consumer sentiment stable in May.

After adjusting for inflation, spending fell by 13.2% in April, also the most ever, supporting forecasts for gross domestic product to shrink by a record in the April-June period.

There were also decreases in spending at restaurants, which have shifted to delivery and pick-up service only, and hotels and motels.

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