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.
First-time claims for unemployment insurance beat Wall Street estimates last week as the U.S. economy enters a critical new stage.
Filings totaled 860,000 for the week ended Sept. 12, the Labor Department reported Thursday. Economists surveyed by Dow Jones had expected 875,000, against the previous week’s upwardly revised 893,000.
The number represents a modest downshift in claims, which had hit a peak of 6.9 million in late March as the economy shut down to try to slow the coronavirus pandemic. Since then, the labor market has recovered though millions remain displaced from job closures associated with the virus measures.
The beat on claims had little impact on financial markets, with Wal Street still poised to open sharply lower.
Claims had remained above 1 million a week through late August. Earlier in September, the Labor Department changed the way it adjusted for seasonal factors to account better for the influence the virus measures have had on the economy.
The economy faces new challenges now after a summer of strong employment growth. Economists and healthcare professionals worry that a resurgence in Covid-19 cases could stall or reverse the gains the economy has seen in the past several months.
Another piece of good news was a decline in continuing claims, which fell 916,000 to 12.63 million. The four-week moving average for continuing claims dropped by 532,750 to 13.5 million.
Economists worry that the end of government assistance to unemployed workers that provided an extra $600 a week on top of what they normally would receive in benefits would exacerbate the problems in the jobs market. However, the pace of claims is continuing to fall, though the total still is considerably above anything the U.S. had seen pre-pandemic.
This is breaking news. Check back here for updates.
Yields retreated overnight from the week’s highs, which were caused by the Fed’s pledge to keep interest rates near zero for years. The central bank also upgraded its economic forecasts, projecting a smaller decline in GDP and a lower unemployment rate in 2020.
However, Fed Chairman Jerome Powell also warned that parts of the U.S. economy will continue to struggle unless lawmakers make progress with a fresh round of fiscal stimulus, with Republicans and Democrats thus far unable to broker a deal on Capitol Hill.
Focus on Thursday will shift to last week’s jobless claims figures for further indication of the health of the labor market recovery. Published at 8:30 a.m. ET, new unemployment filings are expected to come in at 850,000, according to a Reuters poll of economists, after 884,000 claims were registered the previous week.
August’s housing starts and building permits data will also be released at 8:30 a.m. ET.
Auctions will be held Thursday for $30 billion of 4-week Treasury bills, $35 billion of 8-week bills and $12 billion of 10-year TIPS (Treasury Inflation-Protected Securities),
The Federal Reserve kept its pledge to keep interest rates anchored near zero and pledged to keep rates there until inflation rises consistently.
As the central bank concluded its two-day policy meeting Wednesday, it said short-term rates would remain targeted at 0%-0.25%. Officials also changed their economic forecasts to reflect a smaller decline in GDP and a lower unemployment rate in 2020.
Projections from individual members also indicated that rates could stay anchored near zero through 2023. All but four members indicated they see zero rates through then. This was the first time the committee forecast its outlook for 2023.
The decision comes amid stronger economic data during the third quarter. Most economists see a sharp rebound for the U.S. after it plunged into recession in February, a month before the World Health Organization declared the coronavirus a pandemic.
Since then, the Fed has unloaded an unprecedented array of policy tools aimed at keeping markets functioning and the economy afloat. It initiated about a dozen lending and liquidity programs that have coincided with a massive rise in stocks and a steadying and in some cases major rise in economic indicators.
In addition, officials recently announced a new policy regime in which the Fed will allow inflation to run somewhat above the 2% target rate before hiking rates to control inflation.
The policymaking Federal Open Market Committee adopted specific language to emphasize the inflation goal.
“With inflation running persistently below this longer run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer-term inflation expectations remain well anchored at 2 percent. The Committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved,” the post-meeting statement said.
The committee added that “it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time.”
This is breaking news. Check back here for updates.
U.S. government debt prices were slightly higher Wednesday morning as investors awaited the outcome of the Federal Reserve’s two-day meeting, which should offer a glimpse into the country’s economic recovery prospects.
The Federal Open Market Committee (FOMC) will announce its monetary policy decision and economic projections at 2 p.m. ET following its annual symposium in Jackson Hole. Although it is expected to keep rates on hold, markets will be hoping that the central bank maintains its accommodative stance.
Also on investors’ radar Wednesday will be August’s retail sales figures, due for publication at 8:30 a.m. ET, which should offer another indication as to the health of the recovery in consumer sentiment.
In other news, the World Trade Organization has determined that the U.S. violated its international trade rules through its imposition of multi-billion dollar tariffs on Chinese goods as part of the recent trade war between the two economic powerhouses.
House Speaker Nancy Pelosi on Tuesday signaled that Democrats were open to postponing the planned October recess in order to work toward a compromise on a new coronavirus aid package. The White House has indicated a $1.5 trillion proposal from the Problem Solvers Caucus, a bipartisan group of lawmakers from both sides of the aisle.
Auctions will be held Wednesday for $25 billion of 105-day Treasury bills and $30 billion of 154-day bills.
Former top Trump economic advisor Gary Cohn hasn’t decided whether to vote for Biden or the president
White House chief economic adviser Gary Cohn.
Jabin Botsford | The Washington Post | Getty Images
Gary Cohn, who once served as President Donald Trump’s top economic advisor, said Monday that he’s still unsure whether he will support the president’s reelection bid or back former Vice President Joe Biden.
Cohn said that even though he’s a Democrat, he tends to vote whichever candidate he believes will have the most positive impact on the U.S. economy.
“I honestly haven’t made up my mind. I’m really eager to see an economic debate between the two of them,” Cohn told CNBC’s “Squawk on the Street” from Long Island, New York. “I actually vote on issues.”
The former Goldman Sachs president served as Trump’s first director of the National Economic Council until April 2018, when disagreements over policy priorities and a protectionist trade agenda led to Cohn’s departure. Larry Kudlow, a former CNBC contributor, now holds that position.
Neither the Trump campaign nor the Biden campaign immediately responded to CNBC’s request for comment.
Asked what types of policies Cohn would like to see from Congress and the White House, Cohn said he’d favor a more-targeted approach to another round of Covid-19 stimulus. Many small businesses across the U.S. are still in dire straits and in need of additional relief from government legislation to prevent larger corporations from crushing mom-and-pop shops.
“The first set of fiscal stimulus was a blunt instrument: We sort of spread it everywhere. Which at the time was the right thing to do. I think at this point we need a much more detailed, or scalpel-like approach,” he said. “And the place where we need it the most is in the small-business community.”
“Our small businesses in this country — they are key to our success, they are key to our economic growth and they are key to jobs — they still are hurting,” he added. “They’re really in need of more stimulus, they’re in need of more help.”
Cohn said that the small-business support could come from either the federal government via direct payments or through state or local governments backed by Washington support.
Lawmakers remain split over whether — or how much — additional fiscal stimulus is necessary after Congress passed the $2 trillion CARES Act in March. Most Democrats argue that Republicans don’t appreciate the severity of economic downturn and that efforts to pass “skinny” relief bills aren’t sufficient.
All Senate Democrats present last week voted against such a water-down GOP bill that would have reimposed enhanced federal unemployment insurance at a rate of $300 per week, half of the $600 weekly payment that expired at the end of July.
Treasury Secretary Steven Mnuchin told CNBC earlier Monday that he doesn’t think now is not the time to worry about the size of the federal deficit or the Federal Reserve’s balance sheet.
U.S. government debt prices were higher on Monday as investors monitored news of a potential vaccine against Covid-19.
At around 2:30 a.m. ET, the yield on the benchmark 10-year Treasury note fell by 0.18% to trade at 0.6658%. The yield on the 30-year Treasury bond also dropped by 8 basis points to 1.4142%. Yields move inversely to prices.
On Sunday, Pfizer‘s CEO Albert Bourla said that a coronavirus vaccine could be distributed in the United States before the year-end. In addition, AstraZeneca has resumed its phase three trials over the weekend, after suspending them earlier in the week due to safety concerns.
There is no economic data scheduled for Monday.
In the meantime, the U.S. Treasury is due to auction $105 billion in 13 and 26-week bills.
U.S. government debt prices were higher Friday morning as investors monitored an array of economic data, along with the Senate blockage of a slimmed-down coronavirus relief bill and further volatility in equity markets.
Thursday saw whipsawing trade on Wall Street conclude with the resumption of the recent downward trend, again led by sharp losses for tech megastocks Facebook, Amazon, Apple, Netflix, Alphabet and Microsoft.
The U.S. Treasury sold $23 billion in 30-year bonds on Thursday due to firm demand, sending yields slightly lower and flattening the yield curve. No Treasury auctions will be held Friday.
The Labor Department on Thursday reported 884,000 first-time filings for unemployment insurance, worse than the 850,000 expected by economists surveyed by Dow Jones. Continuing claims from those filing for at least two weeks rose from the previous week, hitting 13.385 million, an increase of 93,000 from a week ago, highlighting the uphill struggle facing the labor market recovery.
Market focus on Friday will shift to August’s inflation and core inflation data, set for release at 8:30 a.m. ET.
In other news, Senate Democrats on Thursday killed a scaled back $300 billion Republican coronavirus relief bill, favoring a far more rigorous and expansive spending package. House Speaker Nancy Pelosi told reporters before Thursday’s vote that a compromise could still be reached prior to the Nov. 3 elections, according to Reuters.
– CNBC’s Yun Li contributed to this report.
Former Federal Reserve Chairman Alan Greenspan said his biggest economic concerns in the U.S. are inflation and the budget deficit.
“My overall view is that the inflation outlook is unfortunately negative and that’s essentially the result of entitlements crowding out private investment and productivity growth,” Greenspan said in an interview Thursday on CNBC’s “Squawk on the Street.”
It was the first televised interview the “Maestro” has given since the coronavirus pandemic hit in March.
Speaking about the virus, Greenspan said, “We know very little so we pretend a great deal.”
On the budget deficit, he said the federal government’s spending imbalance is “getting out of hand.” Through July, the fiscal 2020 shortfall totaled $2.45 trillion, the byproduct of intensified government spending to get the economy through the pandemic-associated shutdown.
Greenspan has long bemoaned the additional shortfalls in major entitlement spending like Social Security, Medicaid and Medicare.
“We do have a great deal of knowledge on the extraordinary increase in the size of the retirement area,” he told CNBC. “We are if anything underestimating the size of the budget deficits that are down the road.”
As the U.S. has struggled with its fiscal problems, the Fed has kept interest rates low and most recently committed to bringing inflation up to its 2% goal. The Fed has indicated it will not raise rates even if inflation runs above the goal for a period of time and unemployment hits levels generally associated with higher cost pressure. Inflation has been running consistently below the 2% level for most of the past decade and more recently was closer to 1%.
Greenspan did not comment directly on the policy known as “average inflation targeting.”
“I don’t want to get involved and stick my nose in any of these things,” he said. “I think that so far from what I can judge things are going well there.”