Americans are coming to grips with their spending habits as new data shows that personal incomes are declining.
According to a report from the U.S. Bureau of Economic Analysis, personal income has fallen 2.7 percent in August. The report claims this is due almost entirely to drastic cuts in government subsidies related to the coronavirus pandemic.
After a hot summer of job gains from May to July, the labor market is cooling off as employers created 11 million jobs in August, roughly half of the 22 million lost earlier this year.
Household incomes are two percent higher than they were in February.
Consumer spending grew roughly at nine percent in May, seven percent in June, and two percent in July. The bulk of the spending declines are in services, such as restaurant outings, with increases earlier in the summer for goods, such as housing.
Gains in consumer spending earlier this summer have propelled the slow economic growth through the third quarter that ended on Sept. 30. Few economists expect continued growth as the ability and willingness to spend among Americans is expected to decrease.
Uncertainty surrounding a coronavirus vaccine presents a challenge for businesses in making workforce decisions.
Until a vaccine is discovered, widespread layoffs are expected to continue as Congress scrambles to pass another coronavirus relief package before the November elections.
The impacts of federal stimulus aid passed by Congress earlier in the pandemic are beginning to fade. Much of the aid was doled out between March and July ranging from $1,200 federal stimulus checks under the CARES Act to a $600 enhanced benefit on top of weekly unemployment payments.
In August, President Trump signed an executive order authorizing $300 enhanced benefits added to weekly unemployment payments, which is set to expire in a matter of weeks.
Some remain fearful that decreases in consumer income will equate to reductions in consumer spending, making a tough road ahead for recovery.
Most of the consumer spending gains are merely reflections of “pent-up demand” or purchases that were delayed in spring as non-essential businesses and healthcare services closed. These examples include clothing purchases, touring open houses for sales, and non-essential doctor visits, such as tooth cleanings.
Americans like Hannah Burdy, a 28-year-old from Boise, ID, has said that although their spending has returned to normal, they feel better about their economic circumstances.
Burdy said shrinking interest rates from the Federal Reserve allowed her to refinance their mortgage, saving around $300 per month while her home has increased in value as housing prices across the country continue to climb.