Consumer Spending Climbs, but Sentiment and Income Fall

July 31, 2020

A raft of new economic data shows that American consumers have been spending more, but as government stimulus programs come to end, they also have less income and are more worried about the future.

U.S. consumer spending was up 5.6% last month, building on May’s historic 8.5% increase. Consumers spent big on clothing and apparel, and dining out and hotel accommodations were also up following months of coronavirus related shutdowns.

The good news was tempered by a 1.1% drop in personal income, following a 4.4% decline in May. Economists attribute the decline to the expiration of many government stimulus programs.

While these numbers are a lagging indicator, giving a snapshot of economic activity in June, looking forward, July’s consumer sentiment index may point to trouble ahead. The University of Michigan’s consumer sentiment index fell to 72.5. This means that consumers feel roughly as confident about the economy now as they did during the worst point in the pandemic. Consumers felt worse about the current situation and the next six months. Many economists worry that if consumption, which accounts for nearly two-thirds of economic activity, suffers, it could prolong the recession.


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