Consumer spending slowed in July as coronavirus surge dampened recovery
Consumer spending increased for the third straight month in July but slowed considerably amid surging coronavirus cases across the U.S., according to data released Friday by the Bureau of Economic Analysis (BEA).
Personal consumption expenditures — the amount of money spent by Americans on goods and services for household or personal use — rose 1.9 percent in July, the BEA reported. That marks a notable slowdown from June’s increase of 6.2 percent and May’s increase of 8.6 percent.
Consumer spending fell off a cliff after the onset of the coronavirus pandemic as thousands of businesses closed and laid off employees. Personal consumption expenditures dropped 6.7 percent in March and 12.9 percent in April before bouncing back sharply as coronavirus cases declined through May and the start of June.
While consumer spending has increased in every month since May, the slowing pace of the rebound is another alarming sign of a fading recovery. Consumer spending drives roughly two-thirds of U.S. economic growth and a deeper slowdown could raise financial pressure on businesses struggling to get by during the pandemic.
The pace of job gains has also slowed in step with consumer spending, according to the Labor Department. The U.S. regained 1.8 million jobs in July after recovering 2.7 million May and 4.8 million in June, leaving more than 12 million Americans still unemployed after losing their jobs due to the pandemic.
Economists have warned since June that the rising number of coronavirus cases seen throughout the start of summer would slow the pace of recovery even without the reimposition of businesses restrictions meant to curb the pandemic. Those fears were born out in a wide array of studies and economic data compiled by private firms and the federal government.
“The 1.9% advance in July consumer spending offers yet another sign that while the demand recovery remains on track, it has settled into a slower pace,” wrote Lydia Boussour of Oxford Economics in a Friday analysis. Consumer spending remains 5 percent below its pre-pandemic level, she added.
The expiration of enhanced unemployment benefits and federal foreclosure and eviction protections may also restrain consumer spending in August, economists fear, as vulnerable Americans struggle to cover basic expenses without further federal support. Democrats and Republicans have been locked in a months-long stalemate over another stimulus bill and have made no progress since those benefits expired on July 31.
“Looking ahead, consumption should continue to firm as conditions very slowly normalize but the steep decline in federal support for unemployed workers and heightened uncertainty will depress consumer confidence and spending and weigh on the broader economic recovery,” Boussour wrote.