US personal income falls after benefit expires, raising fears of slower recovery
The decline in income highlights the impact of the expiration of the extra $600 in weekly jobless benefits
Washington — Americans’ incomes fell in August by the most in three months after the government’s supplemental unemployment benefits expired, threatening to temper consumer spending that increased during the month.
The 2.7% decrease in personal income followed an upwardly revised 0.5% gain a month earlier, according to commerce department data released on Thursday. The median forecast in a Bloomberg survey of economists called for a 2.5% drop in August. Consumer spending on goods and services increased 1% from the prior month after a downwardly revised 1.5% gain in July.
The decline in income highlights the impact of the expiration of the extra $600 in weekly jobless benefits at the end of July, which had temporarily propped up household finances and helped spur consumption.
While President Donald Trump in early August announced an additional $300 a week in federal jobless benefits, many states did not get those funds out until early September, and the benefit only lasts six weeks, meaning that further declines in income could continue later in 2020.
The income and spending report showed wages and salaries rose 1.3% in August. Three months earlier, worker pay excluding bonuses increased 2.7%. At the same time, unemployment insurance payments made up 3.2% of annualised income in August, compared with 6.6% in July.
“Labour income now has a big headwind when you add the fact that that extra unemployment income has been taken away at the beginning of August and that state and local governments are straining,” James Sweeney, chief economist at Credit Suisse Group, said.
On Wednesday, House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin renewed discussions about additional government assistance, which could allow for additional federal jobless benefits. It remains to be seen, however, when or if the legislation will come through. The two continued talks on Thursday.
Also on Thursday, data from the Institute for Supply Management showed that US manufacturing expanded in September by less than forecast as new orders pulled back from a 16-year high and production softened.
A gauge of factory activity decreased to 55.4 from 56 a month earlier that was the strongest since late 2018, according to data. Readings above 50 indicate manufacturing is expanding, and September’s figure was weaker than the 56.5 median projection of economists in a Bloomberg survey. Though softer than expected, the manufacturing gauge is still at its third-highest level since 2018.
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