Consumer spending in the United States amounted to only $1.89 trillion in April, a 13.6% plunge and the largest month-to-month decline since the federal government began keeping records in 1959. Economists said this historic spending slash is further proof of a pandemic-linked recession taking hold of the economy.
Consumer spending accounts for two-thirds of the U.S. economy, whose total GDP amounted to $21.4 trillion in 2019, the world's largest. In comparison, China had a GDP of $14.1 trillion.
U.S. consumer spending plummeted 6.9% in March when the lockdowns triggered by the COVID-19 pandemic began. Spending has nosedived almost 20% since February due to massive unemployment that's now left 40 million Americans -- one-fourth of the U.S. workforce -- jobless.
On the other hand, the report from the Bureau of Economic Analysis (BEA) released Friday also shows incomes and savings rates soared in April as Americans began to save more of their precious dollars in the face of massive unemployment and business failures. The U.S. savings rate in April hit a record 33%.
The $2 trillion CARES Act (Coronavirus Aid, Relief, and Economic Security Act) crafted by House Democrats and signed into law on March 27 put more cash in the hands of Americans and kept many from falling into poverty. CARES is the largest-ever economic stimulus package in U.S. history.
CARES provided a one-time $1,200 check to millions of Americans and boosted unemployment benefits for 31 million jobless Americans to cushion the immense hardship wrought by the raging pandemic.
Also because of CARES, personal income surged a record 10.5% in April. Without the CARES stimulus, Americans' incomes would have fallen by 6.3%. Business closures would have dropped wages by 8.0%.
Without CARES, Americans' incomes would have likely fallen, said Sri Thanabalasingam, senior economist at Toronto-Dominion Bank.
The BEA report said personal incomes jumped by 10.5% after falling by 2.2% in March. It pointed out for many Americans, the expanded benefits are helping pay for necessities and bills, rather than other non-essential purchases.
Savings as a percentage of disposable income soared to 33% in April compared to 13% in March. Economists predict it will take American consumers until 2021 to resume their normal spending habits. CARES hasn't led to a spike in inflation, as some economists feared.
U.S. GDP is expected to plunge as much as 40% on an annualized basis between April to June, which is the first quarter that suffered from the full effects of the pandemic. Q2 2020 is set to become the worst quarter on record. Q1 was revised down to a 5% drop on Thursday.
