Chart of the week
The US economic stimulus plans adopted during the spring have surpassed everything ever done before. The cheque payments that were sent directly to US households and the enhanced unemployment benefits of US$600 per week more than compensated for the fall in household income. With the median weekly salary at just over US$900, the enhanced unemployment benefit resulted in a number of workers receiving more than they would otherwise have earned while working.
During a typical recession, government measures help cushion some of the lost earned income. Disposable income, which includes other income plus net government transfers, normally contracts, but less than it would have done. This time, however, has seen the size of the transfers drive disposable income higher.
Most of these extraordinary measures have now come to an end. Households have already received all of the income support cheques and the enhanced US$600 unemployment benefit, which was scheduled to run until the end of July, has expired and not been renewed. The Trump administration replaced this benefit with a temporary scheme drawing on limited funds that are running out.
Against this backdrop, household disposable income declined by 3.2% in August. Pre-election tension between Democrats and Republicans now make any significant agreement on new measures unlikely. The question is will temporary measures be introduced, or will we have to wait until the start of 2021 for a larger assistance programme?
The strong rebound in consumer spending since spring was driven by exceptional income levels and the lack of fresh income support measures may drag on economic activity. That said, and despite the spending recovery, the household savings rate remains high at 14.1% and may be sufficient to cushion the income shock for a few months.
The opinion expressed above is dated 8th October 2020 and is liable to change.
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