As the COVID-19 crisis continues to take its toll on the U.S. economy, economists are expecting that consumption is rebounding but income falls further.
The Bureau of Economic Analysis will be releasing personal income and spending data Friday for the month of May. Consensus estimates were for a 6% drop in personal income following a 10.5% jump in April, while personal spending is expected to rise 8.8% after tumbling 13.6% in April.
“The retail sales data showed that underlying goods spending has started to rebound much quicker than most had expected as lockdowns eased,” Capital Economics said in a note June 19. “It’s less clear how quickly services consumption has recovered but, based on the jump in food services retail sales and other high-frequency data.”
Meanwhile, “A potential downside risk is that incomes probably fell back sharply in May, as the boost from the $1,200 cheques dropped out. But that will have been partly offset by a modest recovery in employment income and a further increase in unemployment insurance payments,” the firm argued.
In addition, the upcoming expiration of fiscal support could prove to be a downside risk, according to Nomura economist Lewis Alexander.
“We expect a “phase four" stimulus package of around $1.5tn to pass before end-July. Failure to extend existing support would weigh significantly on economic activity in Q3 across consumer spending, the labor market and state & local government activity,” Lewis said in a note June 19.
Heidi Chung is a reporter at Yahoo Finance. Follow her on Twitter: @heidi_chung.
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