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After spending more throughout the summer as economies reopened and stimulus checks hit their bank accounts, U.S. consumers have again started rein in their budgets on everything from lawnmowers to movie rentals.
JPMorgan, which tracks the amount its card users purchase from restaurants to grocery stores, said in a note published Friday that its tracker of consumer spending declined 3 percentage points from the prior week.
Americans who use Chase cards last week spent 6.5% less than they did one year ago, marking a fall from the prior week’s print that showed a year-over-year decline of about 3.5%.
Though not yet an established trend, the decline in consumer spending may represent a concerning early sign that the effects of federal support for the U.S. economy made be starting to fade. And, since consumer spending represents about two-thirds of U.S. economic activity, economists worry that a more persistent decline could lead to a slump in GDP at the end of the third quarter and into the fourth.
That may have implications for top U.S. lawmakers, who despite recent encouragement from President Donald Trump remain unable to come to an agreement over additional stimulus.
Source: Opportunity Insights, tracktherecovery.org
“National accounts data reveal that most of the initial reduction in GDP following the COVID-19 shock came from a reduction in consumer spending (rather than business investment, government purchases, or exports),” Brown University economist John Friedman wrote in a paper published earlier this month.
Consumer spending first fell back in March, when Covid-19 and government efforts to contain its spread brought the U.S. economy to an abrupt standstill. Year-over-year data shows that spending on Chase cards in late March 2020 was down more than 40% compared to the same time in 2019.
Tracking that steep decline in consumer spending, U.S. GDP declined at an annual rate of 31.7% in the second quarter of 2020. Of that 31.7% decline, personal consumption expenditures — spending by average American households — accounted for 24.76 percentage points annualized.
But the initial decline in spending quickly reversed course as the summer began, with $1,200 stimulus checks from the federal government helping everyday Americans resume some of their normal habits and purchases. Gradual reopening of state economies also contributed a modest improvement to a resumption of normal consumer shopping.
That echoes the results of comprehensive calculations Friedman, Harvard’s Raj Chetty and their team have conducted in the aftermath of the disease’s outbreak. Friedman and Chetty have constructed a novel database that complies millions of anonymous transactions reported by credit card processors, payroll firms, and banks since January.
Their public database, housed on tracktherecovery.org, provides granular statistics on consumer spending, business revenues, employment rates, job postings, and other key indicators specific to geography (ZIP code or county), industry, income level, and business size.
Using their data based on New York City commerce yields results strikingly similar to JPMorgan’s. Their website shows national consumer spending is down 7.3% as of August 31 compared to January and also shows a deceleration around the start of September.
In New York City, as of August 30, 2020, total spending by all consumers decreased by 12.6% compared to January 2020. Consumer spending at restaurants and hotels in New York over the same period decreased by 36% while spending at grocery stores is up 14%.
“Because the root cause of the shock is self-isolation driven by health concerns, there is limited capacity to restore economic activity without addressing the virus itself,” Friedman added. “In particular, we find that state-ordered reopenings of economies have only modest impacts on economic activity; stimulus checks increase spending particularly among low-income households.”
But since consumers still fear contracting Covid-19, Americans will still ultimately spend less after the one-time boost of a stimulus check wears off. This tend will likely continue, Friedman wrote, until Americans are comfortable returning to crowded restaurants, salons or subways at the levels they were prior to the pandemic.
