Consumer Spending Makes Sharp Drop, Rattling Markets

Chris Gaetano
Published Date:
May 29, 2020
Americans just aren't spending the way they used to, with recent data from the Commerce Department showing a 13.6 percent drop in April from the prior month, despite stimulus measures, said Bloomberg. At the same time, incomes increased by 10.5 percent due to recent increases in government social benefits. Absent these benefits, wages and salaries actually fell by 8 percent from the last month. The current spending drop follows a 6.9 percent plunge in March, and is the biggest decrease since the government first began tracking this data in the late 1950s, said CNN Business.

The cause is clear: Widespread lockdowns throughout the spring meant that not only were people shopping less, there were also fewer places to shop. CNBC said that, just by not going out to eat, the vast majority of Americans, 78 percent, saved an average of $245 since the start of the pandemic. Further, it reported that 75 percent opted out of vacations and 64 percent have delayed major purchases like new cars; on these two items alone, people saved an average of $7,000.

This is consistent with other data showing that many sectors of the economy are experiencing deflation. The Core Consumer Price Index, a government metric that tracks prices of goods excluding food and fuel, showed a record-breaking drop in prices in April, reflecting the economic slowdown wrought by the pandemic. Average prices fell by 0.4 percent from March, which itself saw a 0.1 percent decrease.

Yet, while prices are lowering through much of the economy, in certain sector's they're rising fast. In particular, groceries are becoming more expensive due to a rise in home cooking on one end, and a shattered agricultural supply chain on the other. April saw the price of groceries increase by 2.6 percent, the sharpest increase since 1974. The USDA recently noted that this price rise has been led largely by fish and meat: between March and April, the price of a whole chicken rose by 12.2 percent; pork chops by 7.6 percent; chicken cutlets by 6.8 percent; steaks by 5.2 percent; ground beef by 4.4 percent; chicken legs with bone in by 3.9 percent; white bread by 2.3 percent, processed cheese by 1.9 percent; bacon slices by 1.7 percent; flour by 0.9 percent; and milk by 0.6 percent. On the other hand, the USDA noted that the price of beef stew is down by 0.6 percent (though who is eating beef stew in May?) and the price of butter has fallen by 3.4 percent.

Markets have reacted poorly to today's news. As of 12:43 p.m., the Dow Jones Industrial Average was down 245 points, the S&P 500 had lost 19 points, and the Nasdaq had fallen by 6 points.

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