U.S. Consumer Spending Seems to Decline in August as Extended Unemployment Lapses

Sep 25, 2020News

American consumer spending was found to decline in August, likely due to the lapse of extended unemployment benefits to millions of Americans at the end of July. The data, released by the Commerce Department, furthers the evidence that economic recovery from the COVID-19 pandemic may have stalled.

Core retail sales correlate most closely with the consumer spending part of gross domestic product. According to CNBC, the Commerce Department recently determined that core retail sales fell 0.1 percent in August, after a 0.9 percent increase in July. Economists polled by Reuters predicted a rise of 0.5 percent in August.

Core retails sales exclude gasoline, automobiles, food services, and building materials. Largely due to the increase in gasoline prices, overall retail sales rose 0.6 percent in August.

Job growth and manufacturing also declined last month, and new unemployment applications remained at remarkably high levels throughout early September. The extended unemployment benefits went from a $600 to $300 weekly supplement, which economists estimated cut income by nearly $70 billion in August.

Negotiations between the White House and Congress have stalled, leaving the future of another fiscal relief package for consumers—like the CARES Act credited for much of the turnaround earlier this year—in doubt. But with at least 29.6 million Americans still on unemployment, negotiations could start up again at a moment’s notice.

Consumer spending was expected to rise in the third quarter due to the robust increase in core retail sales at the end of the second quarter. However, if the decline in core retail sales continues, consumer spending would be on a much slower growth path in the fourth quarter.

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