Economic Perspective: Income Up, But Spending Down

MARY WALDEN:

“Today’s program looks at income up, but spending down. Mike, the federal government recently released information on consumer income and spending during April. Were the numbers unusual?”

MIKE WALDEN:

“Usually we see those numbers go together. That is if income goes up, consumers do spend more. We did not see that in April of this year which is very, very unusual. What we saw was that consumer income actually jumped very much, 13 percent, but consumer spending fell 14 percent.”

“Now of course this is due to the virus crisis. Income rose very substantially for households because of the government financial assistance, but a lot of that money was earmarked for multi-months. That’s why it wasn’t all spent during April. The stimulus checks, for example, that many people received are set to hold them for several months.”

“On the other hand, spending went down because many businesses were closed, and because people were responding to stay-at-home orders. The result is that consumers saved a lot of money in April, and it’s going to be very interesting to see if they open their wallets, and open up their savings accounts and spend that money when the economy moves back to some normalcy.” 

Mike Walden is a William Neal Reynolds Distinguished Professor in the Department of Agricultural and Resource Economics at North Carolina State University who teaches and writes on personal finance, economic outlook and public policy.