Coronavirus stimulus: Americans’ income and savings tumble as government support expires
When the financial boost from additional unemployment benefits subsided in August, American personal incomes and savings also fell, according to a new government report.
Personal income fell 2.7% in August, the steepest decline in three months, according to data from the Bureau of Economic Analysis (BEA). The personal savings rate, which hit an all-time high during the pandemic, fell from 17.8% in July to 14.1%.
The news of the declines comes as the Democrats and White House have not yet reached an agreement on a new stimulus package and the economy created fewer jobs than expected in September - signaling a further slowdown in the economic recovery.
The personal savings rate, which hit an all-time high during the pandemic, fell from 17.8% in July to 14.1% in August. Graphic: David Foster / Yahoo Finance
"It shows what everyone warned we were withdrawing their pandemic unemployment insurance too quickly," said William Spriggs, chief economist with the American Federation of Labor and the Congress of Industrial Organizations (AFL-CIO). "That's really bad."
Personal income and savings remain above pre-pandemic levels, but the slow recovery in workers' wages was insufficient to offset the drain on government support.
Read More: Here's What You Need To Know About Eligibility for Unemployment Benefit
The additional $ 600 weekly unemployment benefit expired in late July, followed by limited support under the LWA (Lost Wages Assistance) program, which the president implemented through executive action.
"Households have lost over $ 600 billion in support," Spriggs said. "That was what sustained personal income."
Amid Governor Gavin Newsoms' current Red Tier Restrictions, shoppers will be allowed no more than 25% capacity when shopping at South Coast Plaza on Monday, September 28, 2020 in Costa Mesa, CA. (Allen J. Schaben / Los Angeles Times via Getty Images)
"We are facing a very bad September"
Unemployment insurance contributed $ 633 billion to personal income, half of its July contribution of $ 1.3 trillion. At the same time, wages and salaries rose by $ 119 billion, which is nowhere near enough to offset the loss of government support or match pre-pandemic levels.
"We are facing a very bad September," said Spriggs. "Consumption has to come from income, and the fact that income has gone down means that consumption must ultimately go down."
At least 33 states have disbursed all funds available under the Lost Wages Assistance (LWA) program. (David Foster / Yahoo Finance)
Consumer spending remains below pre-pandemic levels, down 3.4% from February. While consumer spending has improved since April, the pace of the recovery has slowed, with spending only increasing 1% in August.
The decline in personal income will soon be reflected in consumption, Spriggs said. The third quarter shows a smaller recovery than expected.
"After that $ 600 expires, consumption will likely have collapsed for the bottom line," Spriggs said. "Once they get all of the August numbers, they'll show the collapse in consumption below."
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Denitsa is a writer for Yahoo Finance and Cashay, a new personal finance website. Follow her on Twitter @denitsa_tsekova.
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