Personal income could plunge as government programs end

William Arsn

  • US consumer spending improved on a monthly basis in May and June, but personal income could plunge as government programs end.
  • And a drop in consumer spending and personal income could cause issuers’ recovery to backslide.

The value of goods and services by or for people in the US — called personal consumption expenditures (PCE) — rose 5.6{5667a53774e7bc9e4190cccc01624aae270829869c681dac1da167613dca7d05} in June 2020 compared with May 2020, when it jumped up 8.5{5667a53774e7bc9e4190cccc01624aae270829869c681dac1da167613dca7d05} on a monthly basis, per a release from the US Bureau of Economic Analysis.

US consumer spending metrics monthly growth

Consumer spending could regress in the coming months because of falling monthly personal income growth.

Business Insider Intelligence

This uptick in May and June is likely related to many US states allowing businesses to reopen in May and early June, bringing PCE growth up from the -6.7{5667a53774e7bc9e4190cccc01624aae270829869c681dac1da167613dca7d05} and -12.9{5667a53774e7bc9e4190cccc01624aae270829869c681dac1da167613dca7d05} monthly growth rates it posted in March and April, respectively.

But consumer spending could regress in the coming months because of falling monthly personal income growth and the end of key government initiatives. US consumer spending fell 4.4{5667a53774e7bc9e4190cccc01624aae270829869c681dac1da167613dca7d05} on a monthly basis in May and then dropped 1.1{5667a53774e7bc9e4190cccc01624aae270829869c681dac1da167613dca7d05} in June in part because of a drop in government social benefits like stimulus payments, which started in April.

And personal income could take a serious hit in the coming months because enhanced unemployment benefits that gave millions of consumers an additional $600 weekly lapsed at the end of July and the US government appears far from passing a new stimulus package that would give consumers more funds.

A new drop in consumer spending and personal income could cause issuers’ recovery to backslide and introduce new problems surrounding credit card debt.

  • Issuers’ performances could sink just as the companies get back on their feet. Issuers including JPMorgan Chase and Bank of America reported that their card spending was rebounding after it plunged in Q2, and as PCE rises and more businesses reopen, their spending volumes should continue to improve. But a drop in personal income could stop their recoveries in their tracks, so issuers should be prepared to quickly change rewards and other benefits to match consumers’ needs.
  • Credit card debt in the US hasn’t surged during the pandemic yet, but it could if consumers’ income plunges. Total outstanding credit card debt fell by 11{5667a53774e7bc9e4190cccc01624aae270829869c681dac1da167613dca7d05} from February to June, according to data from Equifax cited by The Wall Street Journal. This may be due to consumers moving away from spending on their credit cards amid economic uncertainty, but consumers may use credit cards more if they lack access to needed income, potentially limiting issuers’ ability to ultimately collect payments from cardholders.

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