Americans continue to have lots of money coming into their households, and although they are spending a bit more overall, compared to pre-pandemic times in February, they are:
- Spending a little more on goods–$168 more per household in August than in February.
- Spending a lot less on services—almost $500 less per household in August than in February.
- Saving more—socking away nearly $700 more per household in August than in February.
Total personal income in the nation in August was still higher than in February, in spite of the loss of the extra $600 per week in benefits to the unemployed. The disappearance of those payments caused personal income to dip from July, but, overall, the spending capacity of households remains stronger than in the good old days. Folks are just not doing the spending.
Figure 1 shows the sources of personal income from February through August.
The August total is still higher than the February total, but the big change from July is the drop in unemployment insurance payments. Most of this drop comes from the end of the $600 payments, but some also comes from the return of people to work: wages and salaries were up 1.3 percent from July.
Figure 2 shows the broad categories of spending and savings of the income seen in Figure 1
We see that spending on goods is slightly higher in August than in pre-pandemic February. Non-durable goods spending is down very slightly from February—0.1 percent, largely due to a drop in clothing sales—but durable goods spending is up nearly 1 percent from February. Spending on services grew 1.4 percent between July and August but remains well below peaks in February.
The blue bars are a persistent source of both concern and anticipation. The concern is that saving represents non-spending, and spending on services is what the economy needs right now. Even as national leaders discuss more economic stimulus, it is not clear that additional cash into the hands of consumers would all get spent. Lower income and unemployed people will likely spend the additional cash they get, but middle- and upper-income households might just sit on it and drive savings rates back up. So many of the things that people like to spend discretionary income on are still not available or remain a little scary.
The anticipation part surrounds the question of what households will do with all that savings once the dust settles. Will they hold onto it and put it toward their retirements? Will they spend it on bigger purchases of durable goods—cars, appliances, boats, motor homes? Will they indulge their pent-up demand to travel?
All the money that the federal government has has been printing and that is sitting in bank accounts appears in money supply data. Figure 3 shows the M-1 (blue areas) and M-2 (blue plus green areas) money supply for the past year.
We saw the dramatic jump in the money supply in April and May as the federal government sent out checks and assisted businesses. But even with a slowdown in those programs, and the end of the enhanced unemployment payments, the money supply grew again in September.
As we have noted before, the velocity of money—the rate at which money circulates in the economy—has plunged, so all that cash is heading to the bank too soon and not having a big effect right now. But when consumers do begin to loosen up, hold onto your monetary-policy-nerd hats!