Analysis: Disposable income in April ‘largest monthly increase on record’

Even after receiving government relief funds, Americans did not spend a lot of money in April, and it’s reflected in numbers published by the U.S. Bureau of Economic Analysis.

According to the BEA, disposable personal income increased by 12.9 percent in April. Thomas Dail, with the BEA’s public affairs and outreach, said that according to the agency’s data, “this is the largest monthly increase in DPI on record,” which dates back to 1959.

In March, the personal income was down by more than 2 percent, according to the BEA. However, April saw a drastic change, largely due to COVID-19 relief efforts like the CARES Act and increased unemployment benefits in combination with significantly decreased spending.

According to economist Chester Spatt, with Carnegie Mellon University’s Tepper School of Business in Pittsburgh, there’s “useful things to interpret from the numbers,” but they may not be especially meaningful.

“Some of this just has to do with the timing for when the relief went out,” Spatt said. “I think a lot of these comparisons are not very meaningful because you have all this bunching of relief money.”

Spatt, a finance professor with a doctorate in economics, said that for many Americans the unemployment compensation during the pandemic was above 100 percent replacement. He cited a May 14 study from the Becker Friedman Institute for Economics at the University of Chicago that calculated the median replacement rate was about 134 percent.

“Undoubtedly it overcorrected for some people,” Spatt said of the relief packages. “There may be some limited ways the policies could have been a little sharper, but the policies were rolled out very quickly.”

The numbers for May could look very different, Spatt suggested, especially if the majority of one-time payments of $1,200–which were included in the BEA’s data–were recorded in April.

According to the BEA’s report, Americans also spent far less in April. The personal consumption expenditures decreased by 13.6 percent, while personal savings increased, according to a BEA news release. The personal saving rate of the disposable personal income was 33 percent, which is the highest percentage the BEA’s records have seen, dating back to 1959.

The increase in personal income is one reason for the higher saving percentage, Spatt said, but “the other piece is that people had limited capacity to spend and were choosing to not spend except on the essentials.”

Americans were restricted in spending on travel, dining out, vacations and entertainment, and were also being cautious due to job insecurity. Spatt said this trend in saving money and spending more cautiously could have longer effects.

“I think recent events have made people more cautious, so this may increase long term saving somewhat,” he said.

As states begin to open up, people will begin to spend more, but it will be related to what they’re comfort level is going to a gym, or spa, or on vacation, or on a plane. For example, Spatt said that while there were no restrictions on air travel, it was down 96 percent, because people weren’t willing to risk exposure to coronavirus.

“People are going to be kind of cautious because of their health, but also in part because they recognize the possibility of pandemics in the future and the potential for a second wave,” Spatt said. “They also recognize the fragility of their employment situations, even if they are currently employed.”

With work-from-home options and less commuting, people may be less inclined to own or buy a car.

“The flip side is, people will be less comfortable using public transit or Uber,” Spatt said.

It’s still too soon to predict what those spending trends may look like, he said. People may still be cautious about taking vacations, traveling or staying in hotels, while some may be itching to get out of the house to spend time with family and friends.


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