Interesting? Sure. Dispositive? Maybe, but don’t bet money on this trend continuing in the absence of further action from Congress. As Market Watch points out, the end of federal unemployment insurance bonuses at the beginning of August generated predictions of a big reversal to the nascent economic recovery begun after limited reopenings in most states from the COVID-19 shutdown. In fact, the end of the Paycheck Protection Program (PPP) was predicted to make that situation even worse by spooking consumers into hoarding their cash:
“When the economy’s growth is demand-constrained, anything that keeps households from cutting back on spending actually supports growth,” Josh Bivens, director of research at the Economic Policy Institute, a left-leaning think tank, said in June. “Cutting off a policy support that helps households maintain spending is a terrible idea, both for these households’ welfare and for macroeconomic stabilization.”
So what actually happened? JP Morgan Chase, one of the largest credit-card companies, says that spending actually rose in August:
Whether or not you believe the now-expired $600 weekly unemployment benefit was overly generous or not, like stimulus checks, they allowed more Americans to spend money. But even without the enhanced unemployment benefit, Americans are still reaching for their wallets in stores, restaurants and auto dealerships, data shows. …
Since the $600 benefit expired though, Americans have been spending slightly more, according to spending data of more than 30 million Chase JPM, -1.59% credit and debit cardholders.
Unsurprisingly, that spending is more prevalent in states with low rates of unemployment compared to states with unemployment rates above 7.8%, Chase data shows.
“But we see little sign that the benefit expiration has marked a major turning point for the overall economy, as many other high-frequency spending and activity indicators have continued rising into August,” Jesse Edgerton, an economist at J.P. Morgan said in a note to investors.
The Bureau of Economic Analysis reported Friday that consumer spending rose 1.9% in July, even though the expiration of benefits had been widely anticipated. That was a serious fall-off from the increases the previous two months (8.6% increase in May, 6.2% increase in June), but more or less in line with expectations after the initial burst of revived consumer activity. Any dampening might well have been attributed to consumers having caught up with delayed purchasing or trepidation at the upcoming benefits expiration, thanks to Washington gridlock, or a combination of the two.
That still might be in place. We won’t get the full-spectrum measure of consumer spending in August for another four-plus weeks, but even if this is indicative of the trend, it’s not the whole story. For one thing, consumers expect Congress to pass more stimulus spending at some point, including a federal unemployment bonus of some degree. They could be using credit cards in anticipation of that future influx of cash, at least in terms of the second round of stimulus on which both parties have agreed will be part of the next relief bill. If that bill doesn’t come soon, consumers might not keep up that spending — or may choose not to pay their credit-card bills right away. Consumer debt is already a massive overhang on the economy, and this might create a crisis point if job losses begin in earnest all over again with the expiration of PPP.
So when will we know what’s coming in the Phase 4 relief bill? The Hill reports that the bad blood between Nancy Pelosi and Mark Meadows might mean a long wait for an answer:
As the parties scramble for an elusive deal on another round of coronavirus relief, mistrust and bad blood between two of the principal negotiators — Speaker Nancy Pelosi and White House Chief of Staff Mark Meadows — have snarled the talks and complicated the path to a timely agreement.
The tensions were on full display last Thursday after a 25-minute phone call between the two powerbrokers — the first talks between the sides in roughly three weeks — failed to break the long impasse.
Meadows, Pelosi charged afterwards, displayed a “disregard” for the needs of suffering Americans by rejecting more emergency funding.
Pelosi, Meadows countered, offered “25 minutes of nothing.”
If economic metrics like jobs reports — the August report is due out Friday — and consumer spending stay positive, the pressure will fall on Pelosi to start offering concessions. If those metrics start looking bad, though, Republicans will need to pass stimulus to boost the economic measures ahead of a very difficult election. It’s amazing that, with so much at stake for both parties, no leaders can come up with a common formulation for the imaginary money they’re proposing to spend on any of their priorities. Consumers may be holding up their end of the economy for now, but it’s getting more and more difficult to have any confidence at all in American leadership in a crisis — and that will create all sorts of problems with consumer outlook.
