The Commerce Department report on Friday also showed a heavily government-dependent economy, with financial aid checks from a historic tax package worth nearly $ 3 trillion resulting in a record increase in personal income.
In tandem with the announcement of the collapse in monthly exports, the report lets economists anticipate the sharpest contraction in gross domestic product in the second quarter since the Great Depression. The data was also dismal this month in the labor market, manufacturing production and residential construction.
“Right now, the economy is totally dependent on the generosity of government,” said Joel Naroff, chief economist at Naroff Economics in Holland, Pennsylvania. “Will the federal government continue to send checks or will social assistance payments to households and businesses dry up?”
The Department of Commerce said consumer spending, which accounts for more than two-thirds of US economic activity, plunged 13.6% last month, the largest drop since the government started tracking the series in 1959. It overshadowed the historic drop of 6.9%. in March.
Economists polled by Reuters had forecast that consumer spending would drop 12.6% in April. Expenses were depressed by lower health care spending as dental offices closed and hospitals postponed elective surgeries and elective visits to focus on patients with COVID-19.
The disease has killed more than 100,000 people in the United States, the highest death toll in the world.
Spending fell in restaurants, which moved to delivery and pickup services only, as well as hotels and motels. Spending on food and drinks fell in April.
But the COVID-19 crisis boosted consumer incomes in April, with the government transferring an additional $ 3 trillion to households. He distributed one-time checks for $ 1,200 to millions of people and increased unemployment benefits for the estimated 31 million unemployed to protect themselves from economic hardship caused by the pandemic.
Personal income jumped to a record 10.5% last month. Without government money, revenues would have fallen 6.3%, as business closings cut wages by 8.0%. The unprecedented economic upheaval saw the savings rate reach a record 33%.
“If the economy reopens quickly without consequence, the millions of people who have lost their jobs are rehired and have no reason to fear losing their jobs again, these savings represent a considerable purchasing power in the second half”, said Chris Low, chief economist at FHN. At New York.
“If it takes longer to reopen the economy, these savings will be used for subsistence in the coming months. They will limit the decline, but will not fuel a marked rebound. “
The economy is gradually reopening after the shutdown of non-core businesses in mid-March to slow the spread of COVID-19, raising hopes that the economic recession will bottom out. A survey carried out on Friday showed that consumer sentiment was stable in May.
Stocks on Wall Street plummeted as investors prepared for a U.S. response to China’s national security law in Hong Kong. The dollar remained stable against a basket of currencies, while US Treasury prices rose.
In a second report on Friday, the Commerce Department said merchandise exports fell 25.2% to $ 95.4 billion in April, a 10-year low. The sharp drop in exports was caused by a 65.9% collapse in shipments of motor vehicles and parts. This exceeded a 14.3% drop in imports. As a result, the goods trade deficit widened 7.2% to 69.7 billion last month.
The larger merchandise trade deficit is likely a drag on the second GDP, which economists say could drop as much as 40%, a rate not seen since the 1930s.
The economy contracted at an annualized rate of 5.0% in the last quarter, the fastest rate of decline in GDP since the 2007-2009 recession. Consumer spending fell at 6.8%, the largest drop since the second quarter of 1980.
FILE PHOTO: Mannequins are seen inside a closed luxury store on 5th Avenue during the coronavirus disease (COVID-19) outbreak in Manhattan, New York, New York, United States United States, May 11, 2020. REUTERS / Mike Segar / File photo
With consumer spending depressed in April, inflationary pressures were weak. The Personal Consumption Expenditure (PCE) price index, excluding the volatile components of food and energy, decreased 0.4%. This was the largest drop since September 2001 and followed an unchanged reading in March.
During the 12 months to April, the so-called core PCE price index rose 1.0%, the smallest increase since December 2010, after an increase of 1.7% in March. The core PCE is the Federal Reserve’s preferred measure of inflation. The US central bank has an inflation target of 2%.
“The base decline in the PCE reflects some major price slumps in a limited number of the most affected services,” said Andrew Hunter, senior US economist at Capital Economics. “This is not evidence of widespread Japanese-style deflation that trapped America.”
Report by Lucia Mutikani; Editing by Paul Simao, David Gregorio and Chizu Nomiyama
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