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Consumers are the backbone of the American economy and make up two thirds of the economy. The recovery from the coronavirus pandemic depends on how quickly people open their wallets.
The economy received good news on Friday: after spending dropped by -6.6% in March and -12.6% in April, consumer spending rose 8.2% in May – a record jump, the US said Office for economic analysis. The increase in consumer spending is due to the fact that states across the country eased their deadlocks in May.
While that number has still dropped 11.7% from February, the increase in the past month is another sign that the economy has moved from recession to growth. In May, the unemployment rate dropped from its high of 14.7% in April to 13.3%. And the total number of Americans currently receiving unemployment benefits – still entitlements – is 19.5 million, down 5.4 million from the May high.
And the economic recovery could be bigger than it seems. Why? The economy was likely to shrink in early May and the unemployment rate peaked at 24.9 million in the week of May 9. This is what makes May's economic data so impressive: the upward trend in the second half of the month was large enough to eliminate any decline earlier in the month and still shows a significant gain.
However, there are many reasons to be skeptical of the potential for a V-shaped recovery. For starters, another 1.5 million first-time unemployment claims were made in the week ending June 20 – 14 consecutive weeks in which unemployment claims exceeded one million. Before this pandemic, the United States had never exceeded 700,000 weekly claims. Second, many southern and western states are seeing rising COVID-19 cases that could threaten the recovery. Texas has even reset its reopening plans.
On Friday, the U.S. Bureau of Economic Analysis announced that personal income fell -4.2% in May. But that's not as bad as it seems: Personal income rose 10.8% in April as many Americans received their stimulus checks. So the May drop can simply reflect a more normal pattern.
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