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Consumer spending rebounds a record 8.2 percent in May even as incomes slide

Americans spent more on cars, recreational goods and food services, data show

A shopper leaves a shoe store at CambridgeSide mall, earlier this month in Cambridge, Mass. Consumer spending jumped sharply in May, partly erasing record plunges the previous two months, against the backdrop of a fast-shrinking economy. (Steven Senne/AP)
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Consumer spending rebounded a record 8.2 percent in May as many states began lifting stay-at-home orders and businesses reopened, according to federal data released Friday.

The increased spending comes despite a 4.2 percent drop in personal income, the Commerce Department reported. Personal incomes soared 10.5 percent in April, thanks to $1,200 stimulus checks and other federal help.

Unless Congress approves more assistance, experts such as MUFG economist Chris Rupkey expect personal incomes to drop even more. Millions of Americans will lose $600 a week in supplemental unemployment benefits when the federal program expires at the end of July.

Once the federal funds dry up, it will pull the “rug out from under this fragile economic recovery, as there won’t be any money left to support unemployed workers and growth will downshift to a slower speed,” he said.

“Massive job losses with no paychecks will hit consumer spending hard in the months to come, and once the public’s pent-up demand purchases following the lockdown are made, economic growth could simply peter out,” Rupkey said.

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The spending surge is the largest on record, stretching back to 1959, said Jeannine Aversa, a spokeswoman with the Bureau of Economic Analysis, and helped mitigate the 6.6 percent drop recorded in March and the 12.6 percent tumble in April, when the pandemic forced much of the economy into hibernation and set off a recession. There have been more than 47.3 million applications for unemployment benefits filed since March.

States began incrementally reopening their economies in May, which helped fuel the spending gains. Data show Americans doled out more on recreational goods and food services as they did more dining out and traveling.

Auto sales showed signs of recovery after crumbling in April, when many dealerships were shuttered, CNBC reported. New vehicle sales are expected to close in on 1.1 million.

Retail remains one of the hardest-hit sectors by the pandemic — with J. Crew, Neiman Marcus, J.C. Penney and three other major retailers filing for bankruptcy since May — as they were forced to shut down bricks-and-mortar locations.

Meanwhile, public health concerns continue to weigh on the economy as coronavirus infections surged this week in several states, prompting pauses on reopenings and sending customers back home. Texas and Florida ordered bars to close and imposed new restrictions to mitigate a surge in cases.

On Friday, the United States set a record for new coronavirus cases, passing the 40,000 mark for the first time, according to tracking by The Washington Post. There have been 2.4 million confirmed cases, which the head of the U.S. Centers for Disease Control and Prevention estimated Thursday is likely far short of the actual number. By CDC Director Robert Redfield’s estimates, the number is probably closer to 24 million.

All told, more than 123,000 Americans have died since the pandemic reached U.S. shores.

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It’s unclear whether economic sectors that typically warrant one-time purchases, such as the auto industry or home renovations, will be able to sustain business as the summer progresses.

“The recession may have ended for economic growth, but the recession in the labor markets still rages on,” Rupkey said. “Consumers and businesses are still cautious where spending at the shops and malls and new orders for long-lived capital equipment remain well off the best-economy-in-50-years levels at the start of the year.”

Another 1.48 million workers are newly unemployed