The Consumer Spending Report comes in a hazy economic landscape, with high unemployment, struggling businesses, and deep uncertainty about when the health crisis will be resolved and when people and businesses will feel confident enough to spend and re-hire normally. It also comes weeks after the expiration of a $ 600-per-week federal unemployment benefit that deprived millions of a key source of income and clouded the outlook for consumer spending.
The economy, after a catastrophic drop in the April-June quarter, is likely expanding again. Home and auto sales were strong. Stock prices have reached record highs.
A still high level of confirmed viral cases has damaged several industries, especially those involved in travel, tourism and entertainment, and is holding back growth. On Thursday, the government reported that around 1 million people applied for unemployment benefits last week – a historically high level that has prevailed for weeks.
The Conference Board, a business research group, reported this week that consumer confidence has fallen to its lowest level since 2014. And in survey results released this week by the National Association for Business Economics, two-thirds of economists surveyed said they believed the economy was still in recession. Nearly half said they did not expect it to return to pre-pandemic levels until mid-2022.
After promulgating a massive financial bailout in March, Republicans and Democrats in Congress failed to agree on allocating additional aid to the unemployed and struggling states and towns. The expiration of the federal unemployment benefit of $ 600 a week leaves some families in despair. Economists say the loss of this aid also deprived the economy of a large reserve of pocket money.
President Donald Trump signed a decree on August 8 proposing a lighter version of the extended unemployment benefit. At least 39 states have agreed or said they will seek federal grants that would allow them to increase weekly benefits by $ 300 or $ 400. But it’s not clear how long this money will actually get to people, or how long it will last.
On Thursday, the Federal Reserve announced a major change in the way it handles interest rates, saying it plans to keep rates close to zero even after inflation surpassed its target level of 2%. The change means borrowing rates for households and businesses – for everything from auto loans and home mortgages to business expansion – are likely to remain very low for years to come.
Behind the Fed’s new thinking lies a stubbornly low inflation rate that has long defied the Fed’s efforts to raise it and the belief that an extremely low unemployment rate is of critical importance to the economy and for Americans.