Spending rose in February, another sign that the U.S. had a solid economic foundation before coronavirus ripped through the nation.
The numbers closely mirrored the January report closely, with consumer spending increasing a modest 0.2% for the second month in a row, while income also surged a consecutive 0.6%. The savings rate climbed to 8.2% from 7.9 in the previous month, and PCE inflation advanced to 1.8% from 1.7% in January.
“It rounds out the pre-virus picture well,” said Christopher Low, chief economist at FHN Financial. “We were laying the groundwork for a solid year of growth and now of course that’s all out the window.”
The February report is the last bit of data that will show an economy relatively unscathed by the coronavirus. The March report will paint a much different picture, after record breaking layoffs and before relief from the stimulus package is felt.
The spike in income resulted from farm income doubling, an effect of the trade deal reached with China in January, and there was some foreshadowing of the days to come within the report, with discretionary spending decreasing, and the savings rate increasing.
“If you’re worried, that’s where you’re going to see it first,” said Stan Shipley, senior managing director at Evercore ISI. “That’s going to get crushed in March.”
Businesses were forced to shutter in March as Americans were encouraged to shelter in place to “flatten the curve,” and not overwhelm the hospital systems, leading to a record breaking 3.3 unemployment applications.
Alexandra Savino, a manager of a boxing gym in Manhattan, was among them, along with her colleagues, after the studio was forced to close its doors as part of a government mandate.
“The owners said the company wouldn’t survive if they had to keep paying everyone, and that they would hopefully see us on the other side, but no promises,” said Savino, 27. “It sucked to be let go on a group FaceTime.”
Despite more layoffs to come, income may be salvaged by key provisions in the historic $2 trillion stimulus package, namely the extension of benefits to gig workers and those who are self-employed, and an additional $600 for eligible workers.
“If we think the stimulus package is going to prevent us from having a downturn, it won’t,” said Shipley. “But will that stimulus package soften the blow so that the whole economic system won’t collapse? It might.”
Also included in the stimulus are cash payments of up to $1,200 for Americans who make under $99,000, which is expected to go towards rent and utilities for most households.
As the number of coronavirus cases climbs each day, there doesn’t appear to be a definitive end in sight. Though President Trump has suggested reopening the economy by Easter, some estimates extend beyond the summer, especially if Americans fail to stay inside.
“Thankfully, we’ve already got people thinking about how to get the workforce mobilized again. It’s not going to happen by Easter, but it could happen over the next month,” said Low. “Beyond that, people are working hard on treatments and that kind of thing so hopefully it isn’t as bad as it looks right now. But right now, the economy is on the precipice.”