Americans’ incomes fell in August by the most in three months after the government’s supplemental unemployment benefits expired, threatening to temper consumer spending that increased during the month.
The 2.7% decrease in personal income followed an upwardly revised 0.5% gain a month earlier, according to Commerce Department data released Thursday. The median forecast in a Bloomberg survey of economists called for a 2.5% drop in August. Consumer spending on goods and services increased 1% from the prior month after a downwardly revised 1.5% gain in July.
The decline in income highlights the impact of the expiration of the extra $600 in weekly jobless benefits at the end of July, which had temporarily propped up household finances and helped spur consumption. While President Donald Trump in early August announced an additional $300 a week in federal jobless benefits, many states didn’t get those funds out until early September, and the benefit only lasts six weeks, meaning that further declines in income could continue later this year.
The income and spending report showed wages and salaries rose 1.3% in August. Three months earlier, worker pay excluding bonuses increased 2.7%. At the same time, unemployment insurance payments made up 3.2% of annualized income in August, compared with 6.6% in July.
“Labor income now has a big headwind when you add the fact that that extra unemployment income has been taken away at the beginning of August and the fact that state and local governments are straining,” James Sweeney, chief economist at Credit Suisse Group AG, said on Bloomberg TV.
On Wednesday, House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin renewed discussions about additional government assistance, which could allow for additional federal jobless benefits. It remains to be seen, however, when or if the legislation will come through. The two will continue talks Thursday.
Stock-index futures climbed on hopes for more government relief, while the dollar weakened and the yield on the 10-year Treasury note rose.
Adjusted for inflation, consumer spending increased 0.7% in August after a downwardly revised 1.1% increase in July. Outlays for services led the month’s gain while spending on merchandise was flat, according to the report.
The personal saving rate fell to 14.1% from 17.7%, the Commerce Department said.
Income from wages will be slow to accelerate as millions of Americans remain unemployed, which risks slowing growth in personal spending. A separate report Thursday showed that jobless claims declined to 837,000 in the week ended Sept. 26, and on Friday, the government’s monthly jobs report will give a broader representation of the state of employment growth and hourly pay.
— With assistance by Jarrell Dillard