US consumer spending has increased in June amid resurgence in Covid-19 cases. Consumers spend on healthcare, dining out, and hotels.
For a second straight month in June, US consumer spending rose, shaping consumption for a rebound in the third quarter. However, analysts believe a resurgence in Covid-19 cases and the discontinuation of expanded unemployment benefits could hinder the recovery.
According to the Commerce Department, consumer spending, which makes for more than two-thirds of US economic activity, increased by 5.6% in June after a record 8.5% jump in May as more businesses resumed operations.
Consumers increased their purchases of clothing and footwear. The other areas they spent on were dining out, healthcare, and on hotel and motel accommodation.
Economists surveyed by Reuters had predicted consumer spending would advance 5.5% in June. When adjusted for inflation, consumer spending rose by 5.2% last month after surging 8.4% in May.
The data was covered by the advance gross domestic product report for the second quarter. Figures suggested that the economy is shrinking at a record 32.9% annualized rate as consumer spending moved at a historic 34.6% pace.
With the increase in June, inflation-adjusted consumer spending has shown recovery after the deep hole in April. However, the result is still below its pre-pandemic level. This places consumer spending on a higher growth trajectory leading to the July-September quarter.
However, the anticipation for the increase in third-quarter consumer spending could possibly change due to the increase in Covid-19 infections, especially in the densely populated South and West regions where businesses had to shut down again.
With this, tens of millions of unemployed Americans could lose $600 in additional weekly unemployment benefits after the White House and Congress were not able to settle an agreement for the extension of the stimulus. This aid allowed Americans to pay rent and buy essentials.
In June, consumer spending increased due to a 6.4% rise in purchases of goods. Outlays on services soared by 5.2%.
Personal income declined by 1.1% last month after falling by 4.4% in May as government welfare payments slowed. Wages rose by 2.2% after rebounding 2.6% in May. The saving rate dropped to a still-high 19% from 24.2% in May.
Consumer confidence
US consumer confidence rose more than expected in June 2020 as stay-at-home and quarantine restrictions loosen.
The Conference Board’s US consumer confidence index rose to 98.1 for June 2020. According to economists surveyed by Dow Jones, consumer confidence was expected to increase to 91 from a May reading of 85.9.
“The re-opening of the economy and relative improvement in unemployment claims helped improve consumers’ assessment of current conditions,” said Lynn Franco, senior director of economic indicators at The Conference Board.
However, Franco stressed that “the Present Situation Index suggests that economic conditions remain weak. Looking ahead, consumers are less pessimistic about the short-term outlook, but do not foresee a significant pickup in economic activity.”
“Faced with an uncertain and uneven path to recovery, and a potential COVID-19 resurgence, it’s too soon to say that consumers have turned the corner and are ready to begin spending at pre-pandemic levels,” said Franco.
