The State of the American Consumer: Free Pandemic-Money Runs Low

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by Wolf Richter, Wolf Street:

Stimulus & extra UI dried up. But 16% of “proprietors’ income” in October was PPP money & Pandemic farm aid.

Consumers are running low on artificial steam – meaning stimulus money, extra unemployment benefits, money from rents-not-paid and from mortgage-payments-not-made, though they still get a lot of money from cash-out mortgage refis at historically low interest rates. And consumers are still spending record amounts on durable goods, a lot of them imported, but cut back on nondurable goods. And spending on services – plane tickets, hotels, healthcare, rent, etc. – are still deep in the hole.

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Personal income.

Personal income from all sources in October ticked down 0.7% from September, to a seasonally adjusted annual rate of $19.7 trillion, according to the Bureau of Economic Analysis today. It was down 6.9% from its fabulous stimulus-and-unemployment-money-induced spike in April. But it’s still up 5.5% from a year ago, which makes this, during the Pandemic when over 20 million people are still claiming state or federal unemployment benefits, the Weirdest Economy Ever:

The personal income and spending numbers released by the BEA are “annual rates,” a hypothetical concoction that extrapolates the amount of the current month out to an entire year, essentially multiplying the current month figure by 12. So no, consumers didn’t spend $19.7 trillion in October. That was the “annual rate.” And it was seasonally adjusted too. To illustrate: the actual personal income in all of 2019 was $18.5 trillion, or $1.54 trillion on average per month.

Free Pandemic Money Runs Low.

Income from unemployment insurance (UI) had skyrocketed from an annual rate of $28 billion received by consumers in February to an annual rate of $1.40 trillion in June, fired up by the extra $600-a-week in federal unemployment benefits, which expired at the end of July. While backlogs saw to it that payments were still being processed in the following months, the amounts of UI received began to plunge. And in October, it fell to $306 billion (annual rate), the lowest since March.

Stimulus & welfare payments – the $1,200 per adult and $500 per child – started arriving in bank accounts in April. The BEA adds these stimulus payments to the regular and fairly steady welfare and other government payments (for short, “welfare payments”). Those welfare payments amounted to $506 billion (annual rate) in February, before there was any stimulus. Then in April, stimulus payments of $2.86 trillion (annual rate) flooded consumer bank accounts, and combined with welfare payments amounted to $3.38 trillion (annual rate).

By October, most of the stimulus payments had dried up (deadline had been extended to November 21 for the stragglers the IRS has a hard time finding). And the welfare and stimulus payments dropped to $732 billion (annual rate).

UI, stimulus, and welfare combined, after spiking to an annual rate of $3.88 trillion in April, fell to $1.04 trillion in October:

Money from wages and salaries.

Personal income from wages and salaries, including from self-employment activities, rose 0.7% in October from September to an annual rate of $9.58 trillion. This was still down 0.9% from February, the last month of the Good Times, but it was up 2.1% from a year ago. This is income “in aggregate,” all added together, including those at the top of the income scale with multi-million-dollar increases in annual incomes:

The chart below shows by how much the stimulus and extra unemployment benefits overshot the drop in income from wages and salaries, which is in part what triggered the Weirdest Economy Ever:

Personal income from other sources, October v. the Good-Times February:

Proprietors’ income (farm and nonfarm) rose by 17.5% from February, to $1.92 trillion (annual rate). This includes, you guessed it…

Free Pandemic-money for proprietors: $302 billion (annual rate) of proprietors’ income in October, or nearly 16% of total proprietors’ income, was provided by Pandemic aid programs:

  • “Coronavirus Food Assistance Program” for farms added $93 billion (annual rate)
  • “Paycheck Protection Program loans” (PPP) for farms added $6.3 billion (annual rate)
  • PPP for nonfarms added $203 billion (annual rate).

Supplements to wages and salaries – employer contributions to employee benefits, pensions, and social insurance – at $2.15 trillion (annual rate) are down just 0.6% from February.

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