Consumers Were Starting to Spend Again in COVID-19 Times — Why A Deadlocked Congress Is a Big Problem

American consumers increased their spending in June by 5.6%, according to data published today by the Bureau of Economic Analysis, but those gains are fragile as coronavirus cases surge in parts of the United States and a critical unemployment benefit expires at midnight.

The BEA estimated that personal income in June decreased $222.8 billion (1.1%) with disposable personal income down $255.3 billion (1.4%).

Last month’s gain in consumer spending follows a seasonally adjusted 8.5% rise in May, which had been preceded by two months of  staggering declines as the U.S. entered lockdown mode to help stem the spread of the coronavirus.

Meanwhile, June’s decrease in personal income, the DEA reported, was “more than accounted for” by a decrease in government social benefits “as payments made to individuals from federal economic recovery programs in response to the COVID-19 pandemic continued.”

Now, as the unemployment benefit that aided millions of Americans amid a historical economic crisis disappears — and weekly jobless claims continue to rise — economists are sounding the alarm on a dire situation.

As of midnight, millions of Americans are losing the additional $600 a week in federal unemployment benefits they had been receiving — on top of what they get from their state, which averaged about $372 a week at the end of February.

The funding, which is part of the $2.2 trillion Coronavirus Aid Response and Economic Security Act, or CARES Act, had been introduced at the end of March, and also included $1,200 checks for many individuals.

A follow-up measure, called CARES Act 2, was proposed by Senate Republicans early this week but congressional negotiators — Treasury Secretary Steven Mnuchin and White House chief of staff Mark Meadows, and top Democratic leaders, House Speaker Nancy Pelosi and Senate Democratic Leader Chuck Schumer — were deadlocked after talks that went late Thursday night. The U.S. Senate has  adjourned for the weekend and even when a deal is reached, insiders suggest it could take weeks — if not, longer — to put the measures in place that could see Americans receiving a new round of checks and other benefits.

Meanwhile, the Department of Labor on Thursday estimated that more than 1.43 million people filed for unemployment benefits in the week ended July 25. It marked the second consecutive week the number of applications increased and the 19th week in a row that the country recorded more than a million jobless filings.

At the same time, the Commerce Department reported that the U.S. GDP dropped at a 32.9% annualized rate in the second quarter — a 9.5% fall from the prior year’s quarter and the steepest in records dating back to 1947. Before the pandemic took hold, the average U.S. GDP hovered at around 2%.

What’s more, as the U.S. was moving toward robust reopening plans — giving many businesses the green light to resume operations and call employees back to work — a surge in new COVID-19 infections in Arizona, California, Florida and Texas, in particular, have resulted in reinforced restrictions.

Many businesses that had just begun to rehire their workers were forced to shut down again, pushing more Americans back to unemployment.

Nevertheless, there have been some positive signs for footwear and apparel retailers in recent weeks: Clothing and footwear were the leading contributors to the increase in consumer spending on goods, according to Census Bureau Monthly Retail Trade Survey data. Upbeat earnings reports from brands like Crocs, which had managed to shift resources to digital and ride the momentum of its popular classic clog — a fixture in the medical field — are proof that some companies can find opportunities in a challenging business environment.

Within services, the leading contributors to the increase were spending for health care as well as food services and accommodations.

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