It may sound counterintuitive, but it’s true. US Disposable Personal Income in April was 13.8% higher than the year-ago level.
I recently wrote about the relative strength with which the US consumer entered the COVID-19 pandemic. COVID-19 struck the US at a time when unemployment was low, wages were rising, and consumer debt metrics were relatively benign. The April income data suggests more good news: the downside impacts of the pandemic may not be as severe as initially feared. Although layoffs, furloughs, and reduced working hours did cause a steep decline in pay, this reduction was more than offset by increased unemployment benefits and the government's $1,200 stimulus checks.
However, this additional income did not immediately translate to additional consumer spending. The US Personal Savings Rate skyrocketed in April to 33% of disposable personal income – the highest level on record and four times higher than the 2019 level. The previous record Savings Rate of 17.3% was set in 1975. While some of this elevated saving was undoubtedly a cautious response to uncertain times, much of it was likely not a conscious choice. As restaurants, retail shops, and other businesses closed, consumers simply lost many opportunities to spend. Thus, much of the increased saving was likely involuntary.
As the US gradually reopens, store shelves are restocked, and consumers leave their houses, spending opportunities will return. Although the massive government stimulus of April will not repeat, the timing of these payments to individuals at least cushioned the blow during the worst of the pandemic-related pullback. Furthermore, increases in savings today will support the recovery to come.