Background
The Bureau of Economic Analysis data released on Friday shows that the personal savings rate tripled to 33%, an historic high. This follows March’s jump from 8% to 13%. If these are hard economic times, what in the world is going on? How is it that COVID triples the savings rate?
Findings
- While employee compensation tanked, stimulus payments more than compensated: While compensation fell 8%, a huge slug of federal stimulus payments and incremental unemployment compensation actually raised personal income overall by 11% in April.
- The floor fell out of spending: Personal spending was down 14% in April, and 20% over March and April combined. Higher income, lower spending = COVID triples the savings rate vs. March…and quadruples it vs. February..
- No one wants to see a doctor: The single largest spending drop is health care. People either can’t, or won’t, see health care professionals.
- Going out has gone away: Eating out, hotels, events, gasoline – all are down dramatically.
- Forget travel – it’s in free fall: Airline spending is down 94%, public transportation 91%, as any conveyance you’d share was shunned by almost everyone.
- Clothes? What clothes? Spending is down by half. Given reports that video call participants are dressing up only the upper half of their bodies, perhaps this makes sense.
Implications
These data show which industries are hardest hit in the depths of the lockdown, and may point to those that will have the hardest time persuading consumers to return. When we see the May data in a month, it may show some tentative rebound in some sectors given gradual reopening of the economy.
It’s easy to conclude that airlines are in for a rough time, but there are some more immediate consumer issues and concerns:
- Non-COVID health issues: Scared consumers are postponing any medical attention. This will come home to roost in declining health for many. Hospitals and health groups are already reaching out to their patients to persuade them to come back in.
- Is it safe? Not just dentists – but any business – will find people asking this question. While this is obvious – it may be that critical sectors like health care will lead the way in getting consumers back in to businesses. Medical offices and hospitals may also be able to lay claim to using the most advanced disinfection techniques.
- Will the stimulus continue?: The CARES act has burned through the majority of its stimulus payments by the end of April. If it doesn’t continue paying, and states don’t pick up the slack, we’ll see a significant drop in income and another big hit to spending.
The small print
The data is from the monthly Bureau of Economic Analysis’ Personal Income and Outlays report. Because it comes out about a month after the end of a period, we don’t know what happened in the past 30 days. All the data is reported annualized – e.g. the April numbers reported are 12x the actuals observed because the BEA always annualizes for comparison purposes. This means that the press usually gets it wrong and reports annualized data as one month’s amount.