(Bloomberg) – US consumer spending and income fell more than expected in November and unemployment insurance claims remained at high levels last week, the latest signs that the fall in coronavirus cases is undermining the economic recovery.
Initial claims for unemployment benefits in regular state programs dropped from 89,000 to 803,000 in the week ending December 19, according to the Labor Department on Wednesday, compared with the average economist projection of 880,000. On an unadjusted basis, claims fell by around 73,000.
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A separate report from the Commerce Department showed that consumer spending, which accounts for most of the economy, fell 0.4% last month – the first drop since April. Personal income decreased 1.1%, reflecting the closure of several pandemic aid programs.
The data shows a United States economy limping at the end of the year and suggests that many Americans will struggle in the coming months, as coronavirus cases increase across the country. More companies also face closings or layoffs amid colder weather and less pedestrian traffic.
Vaccine distribution offers hope on the horizon, and the fiscal stimulus package approved by Congress this week should offer some relief, although President Donald Trump’s comments on Tuesday put the fate of the business in question.
“The economy is still very weak,” said Scott Brown, chief economist at Raymond James Financial Inc. “The level of unemployment insurance claims suggests that there is still weakness in the job market”, while on spending, “you see the impact of the pandemic on the season: There is less seasonal shopping than normal, there is less seasonal travel. “
Other reports on Wednesday showed that new home sales dropped unexpectedly to a five-month low, while consumer sentiment and a business investment indicator lagged forecasts.
US stocks soared as investors appeared willing to ignore the president’s comments about the pandemic’s promise of relief sooner or later. Yields on 10-year Treasury bonds increased, while the dollar fell.
The Department of Labor figures showed continued claims, which roughly approximate the pool of total state benefit recipients, decreased by 170,000 to 5.34 million in the week ending December 12. This figure does not include the millions in federal pandemic aid programs, which are set to be extended under the new fiscal stimulus package.
Even with the drop in initial claims for unemployment benefits, the level remains almost four times what it was before the pandemic, and the four-week average has risen to a maximum of two months. California and New York accounted for most of the decline on an unadjusted basis.
More than half of the states reported a decline in initial claims, while Illinois, Virginia and Pennsylvania saw an increase in claims last week.
The drop in spending, which exceeded estimates by Bloomberg’s survey of economists, followed a revised downward increase of 0.3% in October. Spending on goods fell 1%, driven by clothing, footwear and new motor vehicles. Service spending fell with reductions for food and accommodation services.
“We are losing momentum at a critical time,” Diane Swonk, chief economist at Grant Thornton in Chicago, told Bloomberg Television. “Consumer spending is decreasing or decreasing at a time when we should be increasing, and that is due to the increase in Covid’s cases.”
Also on Wednesday, data showed that US durable goods orders increased in November more than expected. But a proxy measure for business investment – non-defense capital goods orders, excluding aircraft – increased 0.4%, less than the 0.6% estimate, after a revised upward advance of 1.6% in October.
The weekly report of claims for unemployment benefits is generally released on Thursday, but has been brought forward because the federal government will close on December 24.
(Adds data on new home sales and consumer opinion.)
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