Americans are on a spending spree, but the sugar rush may be wearing off

Americans are on a spending spree, but the sugar rush may be wearing off

Americans have used their stimulus checks to buy lots of stuff. But the sugar rush could fade if Congress doesn’t come up with a way to get even more money into the pockets of consumers.

The government’s Bureau of Economic Analysis reported Friday that personal spending rose 5.6% in June. That follows a 8.5% surge in May. People were buying a lot of clothing, particularly footwear, according to data from the Census Bureau.

Americans drastically pulled back on their shopping in March and April as the coronavirus crisis plunged the economy into recession. That spending slump is a distant memory though, thanks in large part to money that consumers received as part of the CARES Act.

However, the $1,200 that many consumers have gotten may already have been spent. Americans socked a chunk of their stimulus money into their bank accounts, but the savings rate in June fell to 19% from a peak of 33.5% in April.

What’s more, the $600 in weekly unemployment benefit checks from Washington are set to end on July 31 and it’s not clear if Congress will agree to provide more jobless benefits as part of a new round of stimulus. That raised fears among economists of another fiscal cliff for the economy.

Experts are worried that it may be tough for consumers to keep shopping until they drop without an extension of various stimulus benefits.

To that end, the University of Michigan reported a drop in its widely watched consumer sentiment index Friday morning.

“The federal relief programs have prevented more substantial declines in the finances of consumers, partly shielding them from the unprecedented surge in job losses, reduced work hours, and salary cuts,” said University of Michigan economist Richard Curtin in the report.

A potential pullback in spending could wind up eventually hitting the stock market, too. Stocks have rallied sharply since March in spite of the awful economic data.

“We still have a double digit unemployment rate. But the pain was masked by generous subsidies that offset lost income,” said Thomas Majewski, CEO of asset manager Eagle Point.

“Many people who have been the most impacted are lower earners. We could start to see meaningful changes in consumer behavior absent further stimulus,” Majewski added. He said discount retailers like Walmart and Target could be vulnerable

Still, there remains a bit of a disconnect between soaring stocks and the painful economic reality for many less wealthy Americans. The housing market is still strong. Lowe’s and Home Depot are near all time highs.

Consumer companies like Amazon, Best Buy, Etsy, Costco, Wayfair and Chipotle are also thriving. So it appears that many middle class and affluent consumers don’t seem to be tapped out.

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