US household spending declined for the first time since the spring as incomes fell and the number of Americans applying for unemployment benefits remained at elevated levels, underscoring how the pandemic continues to hurt the economy.
Consumer spending, the biggest driver of US economic growth, fell by 0.4 per cent in November, the first decline since April, the Department of Commerce said on Wednesday, driven by fewer purchases of clothes and footwear and less eating and drinking at bars and restaurants.
The drop in spending was accompanied by a 1.1 per cent fall in personal incomes, reflecting a decline in Paycheck Protection Program loans to businesses and the expiration of other federal wage assistance measures that were put in place earlier this year.
Restrictions intended to slow the spread of Covid-19 have damped economic activity, prompting lawmakers to pass a $900bn stimulus bill this week. The package includes nearly $300bn in small business relief, a new round of direct payments of up to $600 for American adults, and $300 a week in extra unemployment benefits until mid-March.
Lawmakers hope the second-largest economic relief bill in American history will help cushion the blow to the economy until the rollout of the vaccine enables the easing of restrictions.
However, on Tuesday night, President Donald Trump rejected the stimulus bill, saying the landmark economic relief package was a “disgrace” while calling for higher direct payments for Americans and less money for foreign aid.
“The economy is entering 2021 with very little dynamism, and the urgency of passing the Covid relief package cannot be understated,” said Gregory Daco, economist at Oxford Economics. “Without it, consumer spending growth could flirt with zero in [the first quarter],” he added.
Meanwhile, the number of Americans applying for jobless benefits remains at historically high levels.
Weekly jobless claims decreased by 89,000 to 803,000, compared with the previous week, when claims were revised higher to 892,000, the labour department said. Economists had expected claims to dip to 880,000. Before the pandemic, filings averaged about 225,000 a week and the highest single weekly tally was 695,000 in 1982.
The unemployment figures came alongside a decline of 56,960 in claims for federal pandemic unemployment assistance (PUA) to 397,511.
There were 5.3m Americans actively collecting state jobless aid as of December 12, a decrease of 170,000 from a week before, though economists caution this could reflect the exhaustion of benefits by some unemployed workers, rather than people finding new work.
About 20.4m people continue to receive unemployment benefits of some kind nine months after the pandemic began.
“The dip in jobless claims looks like nothing more than a correction after last week’s leap,” said Ian Shepherdson, economist at Pantheon Macroeconomics. With fresh Covid restrictions and unfavourable seasonal adjustments, he expects claims to rise sharply and peak at about 1.15m in the first full week of January.
The virus, which has already killed 300,000 Americans, is spreading rampantly across the US with new cases and hospitalisations hitting record numbers in some parts of the country. Although the rollout of Covid-19 vaccines has brightened the economic outlook, there are fears the country will miss its target of inoculating 20m people by the end of the year.
Still, economists argue that even if the latest relief bill becomes law, it has come too late to avoid a big slowdown in the labour market and a reduction in consumer spending, meaning president-elect Joe Biden will inherit a weak economy when he takes office next month.
A separate report on Wednesday showed that manufacturing was growing, but at a slower pace. Orders for long-lasting goods rose 0.9 per cent month on month in November, following an upwardly revised 1.8 per cent increase the previous month.
However, new orders for non-defence capital goods excluding aircraft, considered a proxy for business investment, rose 0.4 per cent month on month, still shy of economists’ expectations.