Free money runs out, spending drops: that’s mantra now.
By Wolf Richter for WOLF STREET.
The wave of $600-stimmies that went out starting in late December was apparently used up by January. And the new $1,400-stimmies didn’t arrive in February, and so consumer income and spending dropped.
Spending on durable goods dropped 7.8% in February from January, to seasonally adjusted annual rate of $1.82 trillion, according the Bureau of Economic Analysis today. After January’s stunning 12% spike from the prior month and 22% spike from a year ago, February’s spending on durable goods was still up by 17.2% from February last year, the final month of the Good Times. So now everyone is counting on the big-fat new stimmies to turn this fiasco around:
Spending on nondurable goods – largely food and gasoline – fell by 3.2% in February compared to a year ago, to $3.2 trillion (seasonally adjusted annual rate), but was still up 6.1% from a year ago. This month-to-month decline, which is not adjusted for inflation, came despite a surge in gasoline prices:
Spending on services has gone nowhere for six months. In February, it remained flat compared to January, at $9.8 trillion and was still down 5.2% from a year ago.
During the Good Times, services accounted for 69% of total consumer spending. It’s the biggie and includes rents, mortgage interest payments, health care, education, insurance, travel bookings, subscriptions for cellphone, broadband, and streaming, electric utility services, haircuts, ballgames, movie theater tickets, gym memberships, etc.
The absence of a noticeable recovery over the past six months is in part due to the quagmire discretionary services are in, such as travel and vacation bookings, gym memberships, ballgames, concerts, movie theater tickets, etc.
Total consumer spending – given the weight of services – declined in February by 1.6% from January and by 0.6% from a year ago.
Where the heck are the stimmies in this stimulus-addled economy?
Income from wages and salaries in February was unchanged from January, and from a year ago, at $9.7 trillion (seasonally adjusted annual rate). OK, 10 million people still haven’t gotten their work back, and by a different measure, 19 million people are still receiving some form of unemployment benefits.
But the high-wage earners never lost their jobs; they switched to working from home, and at the high, there have been lots of increases in pay packages. Job losses were concentrated at the lower end of the income scale. All thrown into one bucket, the income increases at the much smaller number of high earners papered over the millions of people who still have no income from wages and salaries – that’s what this chart says:
Income from stimmies, unemployment insurance, and welfare benefits had spiked in January as the $600-stimmies arrived. But in February, there were no stimmies, and the January stimmie-spike unwound. We’re awaiting with feverish anticipation what this chart will look like for March and April, when the $1,400-stimmies arrive. It’s going to blow our socks off:
Waiting for a $1,400-stimmie WTF spike in March.
The two Pandemic Money Overshoots are a sight to behold, with stimulus and unemployment payments generating far more income during those two periods than was lost in wages and salaries, which in part explains the spike in spending on durable goods.
Total income – the above, plus income from rents, interest, dividends, pension payments, Social Security payments, farm income, etc. – in February fell 7.1% from January to $19.9 trillion (seasonally adjusted annual rate) and unwound the record spike in January. But it was still up 4.3% year-over-year. Now we’re waiting for a WTF spike in March and April, powered by the new $1,400-stimmies:
In addition to the stimmies…
This doesn’t enter into income, but it enters into cash flow: There has been a boom in cash-out refis of home mortgages as mortgage interest rates plunged to record lows. This cash-generating machine continued in February, though at a slightly slower pace as mortgage rates have surged.
Then there is lender extend-and-pretend. About 2.5 million of homeowners still don’t have to make mortgage payments because their mortgages are in forbearance, according to the Mortgage Bankers Association. In addition, federal student loans were automatically entered into forbearance programs, and borrowers still don’t have to make loan payments. These programs have been re-re-extended. Extend-and-pretend used to be frowned upon by banking regulators, but now it rules.
Cash extracted from the home ATM and cash from not-paid for debt service can be and is being spent on other things. And so, this consumer economy has become depended not only on free money from stimmies, but also from the endless extend-and-pretend. And the stimmies in March and April should provide for a doozie for personal income and spending. You just cannot beat free money.
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