Devastating Consumer Financial Cliff Coming Right Up

Mish

Consumers continued to spend in July but it won't last.

Real Spending vs Real Income

Real Spending vs Income  For July 2020

Personal Income and Outlays, July 2020

The charts reflect data from today's BEA report on Personal Income and Outlays, July 2020.

  • Personal income increased $70.5 billion (0.4 percent) in July. Disposable personal income (DPI) increased $39.9 billion (0.2 percent) and personal consumption expenditures (PCE) increased $267.6 billion (1.9 percent).
  • Real DPI decreased 0.1 percent in July and Real PCE increased 1.6 percent. The PCE price index increased 0.3 percent. Excluding food and energy, the PCE price index increased 0.3 percent.

On the surface, things look ok. 

Real Disposable Personal Income (DPI) was down a mere 0.1 percent while consumer spending more than held up.

Personal Consumption Expenditures (PCE), consumer spending, rose 1.6%.

Ominous Picture

This is an ominous picture because the Congressional Covid stimulus expired on July 25. 

That's when the last weekly stimulus check of $600 was sent. As of August 28, consumers will have missed 5 weekly checks of $600 each. 

How Many People?

The answer comes from my post yesterday Unemployment Claims are Still Extremely Elevated.

All Continued Claims

All Continued Claims in 2020 August 27 Report

Over 27 million people missed 5 weekly checks of $600 each. 

Here's the math: 27 million * 5 * $600 = $81 billion dollars. 

That is money consumers don't have to pay the rent, pay mortgages, or but food.

Some of those checks went to people working part-time. Continued claims represent people not working at all.

Continued Claims

Continued State Unemployment Claims in 2020 August 27 Report

Continued claims are covered employees who worked no hours. That's at least 14.5 million. But that total does not include gig workers, self-employed, and other workers not covered at the state level. 

My best guess is around 20 million people are solely reliant on pandemic assistance. Of them about 6 million have no money coming in at all.

14.5 million have only state benefits and that is not nearly enough to pay the bills. 

Congressional Bickering

Congressional bickering over the amount of stimulus has been ongoing for months. Forbes has the latest details as of today. 

  • According to Reuters, Meadows said the $1.3 trillion bill was offered to Democrats privately.
  • In their first conversation in weeks, Meadows and House Speaker Nancy Pelosi (D-Calif.) spoke for 25 minutes via phone on Thursday but did not make any progress towards reaching an agreement.
  • Meadows described the call as “25 minutes of nothing,” Fox Business reported, and Pelosi said in a statement that the conversation made it clear that “the White House continues to disregard the needs of the American people.”
  • Pelosi also said Thursday that Democrats were “not budging” on their latest offer.

No End in Sight to Bickering

Despite over 20 million people are severely impacted and have been for 5 weeks, there is no end in sight to the bickering.

Financial Cliff Has Started

A financial cliff is not coming up, it has already started. It will show up in the August data accompanied by a jump in evictions and repossessions.

Mish

Comments (72)
No. 1-18
bradw2k
bradw2k

Seems like we have just lived through what would have been the next 10 years of deteriorating economic and socio-psychological conditions in 5 months.

Greenwald had an interesting talk today on "Is the US Social Fabric Unraveling?" He's very perceptive, but as a prog his final takeaway is of course that we need socialism.

Carl_R
Carl_R

I talked today to a guy in the flooring business. What a strange story he tells. New construction is booming, and lumber prices have doubled. People are flush with cash, and remodeling, too. He has a massive backlog, but is losing money because he can't get goods. The flooring manufacturers are running half shifts, despite the huge backlog, because they can't hire anyone. Unemployment benefits have been so high that no one will work. That may be changing, now, but it will take awhile for goods to reach him.

Carl_R
Carl_R

In terms of people ability to spend, you have to keep in mind that, working from home, even with the same income, or less, they may have more to spend because they have much lower expenses. They save money on gas, cars, coffee, food, clothes, cleaners, and many other things.

nic9075
nic9075

Prices on everything have jumped across the board... Compare what you bought on Amazon a year or two ago to now and the prices will be 10% - 50% more
But there is no slowdown in consumer spending occurring. The weekly chain store index is 4.5% higher than a year ago. Every index from shopper traffic to indices from Mastercard and visa show no slowdown in spending.

Remember that the 90% of people who HAVE jobs also got the stimulus check. White-collar professionals who are making six figures and likely have a triple digit IQ know how to invest in the stock market and most are flush with cash from not only investment income but from inheritances when parents/ grandparents kick the bucket

magoomba
magoomba

Last winter was a bust anyway. Folks are hunkering down for this one.
Even the few that still have income.

PecuniaNonOlet
PecuniaNonOlet

Professional workers have been insulated from the mayhem but that is going to change soon. Many firms are ratcheting up layoff plans and I expect a huge layoff wave in October. How this will impact the election will be interesting...then there is the flu season+corona wild card. What mayhem will that bring?

Jojo
Jojo

If it wasn't for the current aggressive FED support, the DJI would be below 20k.

Economic Rebound Defies U.S. Benefit Cuts and Broadly Holds On
August 24, 2020, 5:25 PM

TCW
TCW

What will the riots be like if our currency loses reserve status and takes a dive? It may be time to move back to the farm.

lol
lol

Forget overpriced gold,put your cash in what will keep your ass alive, Scar 17 cheaper, add a plate carrier,why?Trump will use the permanently collapsed economy for cover to cancel elections and declare Martial Law and dusk to dawn curfew!

Casual_Observer
Casual_Observer

I have a sneaking suspicion the rug is going to be pulled out from under Trump very soon dooming his chances for reelection. Try as he might to hope and ignore everything and pretend thr happy talk we know it's not reality. If the big money goes short before the election you will know they dont want him anymore and would rather have Biden even if it means changes to everything. Who are we kidding. Unemployment is closer to 20% and Trump has had too much instability. Even before covid. Investment in the actual investment was negative before covid. That is red flag for every business.

JonSellers
JonSellers

Win-win for the Democrats. Republicans don't take their offer, the recession goes deeper, Trump loses voters. Republicans accept the officer, Democrats get to say they're the ones that cared. Trump loses voters. Republican Senate should have taken the offer early. I'm guessing they're refusal means they want Trump out too.

Herkie
Herkie

I watched the Pelosi press address on CSPAN and she was certainly frazzled, but I say all of this is on the GOP. The dems formulated the HEROES Act back in May and it was not till mid July the GOP even responded with a plan of their own that was less than 1/3 the dem plan, and which left the people out entirely, it demanded conssessions on such things as tort reforms and specifically cut out state and local governments that have been badly damaged by Covid, particularly blue states and cities/counties because that is WHERE PEOPLE ACTUALLY LIVE, in urban regions where 85% of Americans reside. It did not address election security, it envisioned no money to keep the USPS functional going into the biggest vote by mail election ever, so that people will have to congregate at polling stations and wait to vote with sick people.

And when Pelosi and the dems offered to slash their plan from $3.4 trillion to just $2 trillion if the GOP would come up from less than $1 trillion to $2 trillion the GOP gave them the bird. The democrats have done all the negotiating they should or can and still serve the people, while the GOP was only ever going to help Wall Street.

So we go over that cliff and see who the voters blame more, because this is in reality a game of chicken with the GOP betting on themselves. And the democrats headed for that cliff know that to cave would damage Americans to the point that going off the cliff will be the least of their problems if the republicans get their way.

Even when the GOP did do something to "help" the average American with their payroll tax holiday of four months they are not helping at all, every cent of deferred tax has to be paid by April 30, so dime for dime what thye get to keep between now and New Years will have to be paid double between New Years and May.

My bet is the GOP is BADLY miscalculating how many people are in deep caca, and yet they (The Fed's Bullard actually) announced just yesterday the recession is ended, over, we are back to normal economically. So in their view there is no need for any unemployment or stimulus.

Tell that to the 40% of rentrs behind on rent, or the 8% of all mortgage holders that now have to pay the arrears on their forbearance on their homes or lose them. Or the tens of millions with no job or seriously underemployed, or who have no income at all. If they do not starve first the GOP expects them to go to the polls and vote for more of this Trump economy.

RIGHT!

By the way, the Pelosi - Meadows impass that is so widely reported has nothing to do with the senate GOP which is standing by watching while sitting on their hands. Meadows is the White House Chief of Staff so this is all about Trump being the obstruction to any aid to Americans, he just does not want his name on the lack of action because he KNOWS what the yield will be at the polls starting in now in 15 days when PA becomes the first state to begin early voting. Even if he relented in the next two weeks the damage to his brand will be done. So he has Meadows name on it counting on the vast majority of the public not understanding that Meadows takes his orders directly from Trump and Jared and Ivanka.

For those who don't know Meadows he was a house rep till Trump hired him as Chief of Staff at the end of March when the pandemic was already in full swing. He was the head of the house freedom caucus from 2017 and the ranking member of the oversight committee for 8 days, he is from North Carolina.

for those that think we should not allow lawyers into the house: Meadows falsely claimed to hold a Bachelor of Arts from the University of South Florida for many years in his official biography maintained by the Office of the Historian of the U.S. House of Representatives. In actuality, he graduated from the University of South Florida with an Associate of Arts.

Six000mileyear
Six000mileyear

My significant other has reported E-bay sales down by 50% for every week in August. When extra unemployment money ended, she noticed immediately. Official retail month over month numbers will be telling, if they are allowed to be published.

Tony Bennett
Tony Bennett

"No End in Sight to Bickering"

...

I beg to differ.

A couple of things. One, House and Senate in recess till Labor Day. Unless R Senators were to cave to Pelosi there was never going to be a deal in August. Two, both sides have been awaiting August NFP number out September 4th. A good payroll number gives R Senators leverage. A poor number supports Pelosi.

I fully expect a deal of sorts by mid September. It will be sooner rather than later as Congress closes for month of October to head home and campaign.

Bardenio
Bardenio

Tough to know the real impact of this. Anecdotally almost everyone I know collecting is simply because it pays them a lot to collect and they tend to be second incomes of the household. There is a huge distortion of jobs that pay less than the UE pays that aren't filled. With that said, entertainment is still a disaster and that's a lot of jobs.

MATHGAME
MATHGAME

"An imbalance between rich and poor is the oldest and most fatal ailment of all republics" -- Plutarch


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