U.S. Household Income, Spending Likely Picked up Last Month

10/30/2020 | 04:45am

By Amara Omeokwe

Households likely boosted spending last month as incomes rose, forecasters say, another sign the U.S. economy continued recovering into the fall from the damage inflicted by the coronavirus pandemic.

Economists surveyed by The Wall Street Journal expect the Commerce Department to report Friday that personal-consumption expenditures -- a measure of household spending on goods and services -- rose 1% in September, the same increase as in the previous month. Household spending has been rising after a steep drop off earlier in the pandemic, although the pace of gains slowed over the summer and into the fall.

Personal income -- a measure of what households receive from wages and salaries, government aid and investments -- is expected to rise 0.5% in September, after a sharp decline in August.

A moderate rebound in personal income would likely reflect the impact of a federal supplement to state unemployment benefits that provides recipients with an extra $300 a week, said Richard Moody, chief economist at Regions Financial Corp. The Commerce Department said August's drop in personal income was due mostly to the end of a separate program that provided a $600 weekly bonus to recipients of unemployment benefits.

The $300 extra in benefits "should make up some of the decline we saw in August -- certainly not all of it because it's a much smaller weekly payment," Mr. Moody said.

Government stimulus to help people weather the pandemic provided a financial cushion to households that has propelled spending in recent months, said Lindsey Piegza, chief economist at Stifel Nicolaus & Co. For example, the federal government allowed for deferred payments on certain types of student loans and mortgages.

"We see that consumers are still spending. In many cases, they are spending differently, meaning the composition of goods and services in their basket are different now," Ms. Piegza said.

Companies such as Mattel Inc. and Chipotle Mexican Grill Inc. this month posted strong quarterly sales figures, reflecting American households' increased interest during the pandemic in at-home entertainment and food that can be ordered online. Orders for long-lasting factory goods rose for the fifth straight month in September amid strong demand for household furnishings and vehicles.

Carter Rabasa, a self-employed events planner from Seattle, said he and his family over the course of the pandemic had purchased a $1,500 pergola for their backyard, along with making other improvements to their garden area. He said his family had also boosted spending on things such as takeout food.

"We think of it as a sort of pandemic relief. The kids are having this dreadful remote school experience. We're just trying to think of things that will brighten the day and those things cost money," Mr. Rabasa said.

U.S. gross domestic product in the third quarter rose a record 7.4% compared with the second quarter, the Commerce Department said Thursday, as the economy rebounded with the easing of lockdowns and other restrictions on business and consumer activity.

Consumer spending contributed strongly to growth, increasing at a 40.7% annual rate in the third quarter.

Meanwhile, the Labor Department reported initial jobless claims, a proxy for layoffs, fell by 40,000 to 751,000 in the week ended Oct. 24. That was the lowest level of claims since mid-March, although they remained historically high.

Robert Frick, corporate economist at the Navy Federal Credit Union, said economic uncertainties linger, amid a resurgence in coronavirus infections and unevenness in the U.S. labor market, with signs that some layoffs during the pandemic are becoming permanent job losses.

As a result of pandemic-related woes, companies ranging from Boeing Co. to Ralph Lauren Corp. have recently announced job cuts. Boeing said it expects to reduce its head count by another 11,000, building on previously announced cuts to its workforce.

"We're in a precarious place. The twin variables, Covid and stimulus, are even more important than they were, say, a month or two ago," Mr. Frick said. Job growth "seems to be slowing down more than people anticipated, so we need stimulus."

Further federal coronavirus stimulus is unlikely for now, however. Despite weeks of negotiations, Washington lawmakers and Trump administration officials haven't reached an agreement on providing more aid.

Several federal coronavirus aid initiatives have already ended or are winding down. A spokesperson for the Federal Emergency Management Agency said 54 states and territories have been awarded $42 billion to provide the $300 weekly supplement to recipients of state unemployment benefits. President Trump in August issued an executive action allowing states to receive $44 billion in FEMA funds to issue the enhanced benefits, meaning the agency has distributed most of the available funds.

Meanwhile, Americans' short-term outlook on economic conditions worsened this month, weighing on an index of consumer confidence from data firm The Conference Board.

Valarie Black, a single mother of two from Harrisburg, Pa., said she was furloughed from her job as a hotel sales manager in March and ultimately laid off in June. Since then, Ms. Black, 43 years old, said she had been collecting unemployment benefits and searching for work. Finally this month, as her unemployment benefits expired, she accepted a sales position at a car dealership. The pay is commission-based.

"At this point, it's better than making nothing. I know I'm a hustler and I know a lot of people in the area, so I'll just do what I can to sell them cars," Ms. Black said.

But she said she is being conservative with spending.

"At this time, it's a hold on everything until Christmas comes around for my kids," she said.

Write to Amara Omeokwe at amara.omeokwe@wsj.com

(END) Dow Jones Newswires

10-30-20 0544ET

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