US June consumer spending up 5.6%, but Covid-19 could stall gains

American consumers increased their spending in June by a solid 5.6 per cent, helping regain some of record plunge that occurred after the coronavirus struck hard in March and paralyzed the economy. But the virus' resurgence in much of the country could impede further gains.

Last month's rise in consumer spending followed a seasonally adjusted 8.5% surge in May after spending had plunged the previous two months when the pandemic shuttered businesses, caused tens of millions of layoffs and sent the economy into a recession.

So deep was the pullback in the spring that even with two months of gains, consumer spending was still down at a record annual rate of 34.6% in the April-June quarter.

 

Now, with confirmed viral infections rising in a majority of states, many businesses have had to pause their re-openings or close a second time and cut jobs, thereby putting consumers under renewed pressure.

The number of laid-off Americans who have applied for unemployment benefits has topped 1 million for 19 straight weeks. All told, roughly 30 million people are out of work, the government says.

And a standoff in Congress over extending further support to struggling households and businesses threatens to hurt millions of the unemployed. That, in turn, would weaken spending by consumers, the primary driver of the economy.

Friday's Commerce Department report showed that the increase in consumer spending in June coincided with a 1.1% drop in personal incomes which followed an even bigger 4.4% decline in incomes in May. The report came against the backdrop of a devastating economic collapse in the spring.

The government estimated Thursday that the economy shrank at a dizzying 32.9% annual rate in the April-June quarter by far the worst quarterly plunge on records going back to 1947 as the viral outbreak shut down businesses, threw tens of millions out of work and sent unemployment surging to 14.7%.