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.
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.
Treasury Secretary Steven Mnuchin said Monday that lawmakers should not allow fears over the size of the federal deficit or the Federal Reserve’s balance sheet to delay additional Covid-19 relief.
Mnuchin, who with White House chief of staff Mark Meadows has led the administration’s Covid-19 relief negotiations, said that the economic crisis warrants extraordinary stimulus from both Congress and the Fed.
“Now is not the time to worry about shrinking the deficit or shrinking the Fed balance sheet,” Mnuchin told CNBC’s “Squawk Box” from the White House. “There was a time when the Fed was shrinking the balance sheet and coming back to normal. The good news is that gave them a lot of room to increase the balance sheet, which they did.”
“And I think both the monetary policy working with fiscal policy and what we were able to get done in an unprecedented way with Congress is the reason the economy is doing better,” he added.
Mnuchin’s comments critiqued his fellow Republicans who argue that improving jobs data and strong housing figures relax the need for additional spending to combat the impact of the coronavirus.
Republican Sen. Rand Paul of Kentucky, for example, voted against a GOP “skinny” stimulus plan last week and has repeatedly attacked his own party for what he views as prodigal spending.
“The majority of Republicans are now no different than socialist Democrats when it comes to debt,” Paul wrote on Twitter in July. “They simply don’t care about debt and are preparing to add at least another trillion dollars in debt this month, combined with the trillions from earlier this summer.”
The cumulative federal budget deficit for the first 11 months of fiscal year 2020 was $3.0 trillion, according to the Congressional Budget Office, a byproduct of intensified government spending to get the economy through the pandemic-associated shutdown.
Even Mnuchin, who argues more stimulus is needed to help the U.S. economy, noted Monday that “we are rebounding in a very, very significant way.”
Paul’s vote helped sink the Senate Majority Leader Mitch McConnell’s plan, which fell short of the 60 votes needed on a procedural step to move toward passage.
All Democrats present and Paul voted against the bill in a 52-47 vote. That legislation 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.
But Mnuchin struck a more compromising tone Monday and said he’s still willing to work with Pelosi on a new deal.
“I think there’s many areas of this where is an agreement between the Democrats and the Republicans, and some of the areas we do have differences on the amounts,” he said. “But I will continue to work on this: I’ve told the Speaker I’m available any time to negotiate.”
The Treasury Secretary said he expects the Problem Solvers Caucus to produce a stimulus proposal later Monday.
People walk along Wall Street in the Financial District on September 02, 2020 in New York City.
Spencer Platt | Getty Images
U.S. stock futures were little changed on Wednesday night following a rebound during market hours that stopped a three-day skid.
Futures for the Dow Jones Industrial Average dipped about 20 points, while those for the S&P 500 and Nasdaq-100 each lost about 0.1%.
The move in futures follows a broad rally for the market on Wednesday, with the S&P 500 rising 2% for its best day since June. The Nasdaq Composite rose 2.7% to pull itself out of correction territory after a sell-off for major tech stocks drove a sharp sell-off in three straight sessions.
Some of stocks hardest hit during the recent slide saw more dramatic pops. Shares of Tesla, fresh off their worst day on record, rose nearly 11%. Tech giant Apple gained 4% to bring its market cap back to $2 trillion.
The three-day drop came amid increasing worry on Wall Street about a tech bubble, with major tech stocks fueling the Nasdaq Composite to record highs despite the hit to the economy from the coronavirus pandemic. Some said the pullback did not go far enough, with Duquesne Family Office CEO Stanley Druckenmiller telling CNBC on Wednesday morning that the market was in an “absolute raging mania.”
Others pointed to reasons why the market could regain its footing once again. Liz Young, the director of market strategy for BNY Investment Management, said the investor cash still parked on the sidelines after the pandemic-induced sell-off in February and March should provide support for stocks.
“People go to cash in droves — and it’s immediate, it’s a big wave. They come back in in drips. So as it drips back in, that cash is going to look for more attractive valuation opportunities. So I think it’s natural that it would look for things that have been a little more beaten down or some of the stocks that haven’t driven us up to this point,” Young said on “Closing Bell.” “But I don’t think we’re in a place now where you have to start selling rallies and taking exposure off the table.”
Investors will be be greeted with new economic data on Thursday morning, including the Labor Department’s weekly jobless claims report. Economists surveyed by Dow Jones expect 850,000 new claims, down from 881,000 last week.
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The U.S. economy added a greater number of jobs than expected during August as hiring by the federal government for the 2020 Census and a rebound in retail employment led almost all of the major sectors higher.
The Labor Department reported Friday that payrolls increased by 1.37 million in August, above the 1.32 million estimate that economists polled by Dow Jones had expected. The unemployment rate tumbled to 8.4%, far better than the 9.8% expected.
CNBC studied the net changes by industry for August jobs based on data contained in the employment report.
Government showed the strongest hiring numbers. A torrent of hiring by the federal government for the 2020 Census ballooned net payrolls for the sector by 344,000, about 25% of the over-the-month gain in total nonfarm employment. That eye-popping number was in large part thanks to the federal government’s hiring of 238,000 temporary 2020 Census workers.
“After the sell-off yesterday, there will have been a collective sigh of relief to see payrolls rise 1.37 million in August, the fourth consecutive month of gains,” Seema Shah, chief strategist at Principal Global Investors, said in an emailed statement.
“One small negative from today’s report is the impact it may have on fiscal support discussions,” she added. “With growing signs that US activity is improving and jobs are coming back, there is less pressure on Congress to deliver a new fiscal stimulus package. That will be a mistake.”
Retail trade took the No. 2 spot in August with a net addition of 249,000 jobs. Almost half of that increase occurred in general merchandise stores, which includes department stores, warehouse clubs and supercenters. Motor vehicle and parts dealers also saw notable gains of 22,000, while electronics and appliance stores netted 21,000.
“These improvements in the labor market reflect the continued resumption of economic activity that had been curtailed due to the coronavirus (COVID-19) pandemic,” the government said in a release.
“In August, an increase in government employment largely reflected temporary hiring for the 2020 Census,” the Labor Department added. “Notable job gains also occurred in retail trade, in professional and business services, in leisure and hospitality, and in education and health services.”
Leisure and hospitality continued to post strong numbers after being battered earlier in the year as Covid-19 and efforts to contain its spread froze travel plans and shuttered restaurants around the country. The sector, which added 174,000 last month, saw about 75% of that growth from food services and drinking places.
Despite job gains totaling 3.6 million over the last four months, employment in food services and drinking places is down by 2.5 million since February.
Professional and business services, which encompasses a wide variety of experts from engineers and architects to consultants and lawyers, added 197,000 jobs. More than half of that rebound, or 106,000 jobs, occurred in temporary help services.
— CNBC’s Nate Rattner contributed reporting.