American consumer spending ground to a halt during the coronavirus lockdown, and that is a massive problem for the spending-addicted US economy.
April's personal consumption data showed a 13.6% drop in consumer spending, according to a Bureau of Economic Analysis report released Friday. That's equal to $1.89 trillion.
In total the PCE index fell 0.5% from the prior month. Excluding food and energy, for which prices can change more rapidly, the index slipped 0.4%.
It was the largest month-to-month decline since the BEA began tracking the data in 1959. And it followed a similarly steep, revised 6.9% drop in March when the lockdown began.
About two-thirds of America's economy runs on consumer spending, so this doesn't bode well for the start of the quarter. The steep drop in spending is just the latest sign of an economy in a dire, pandemic-linked recession.
Millions of people have lost their jobs and businesses are reliant on government stimulus, while more than 100,000 lives have been claimed by Covid-19.
Gross domestic product, the broadest measure of economic performance, is expected to drop as much as 40% on an annualized basis between April and June. That would be the worst quarter on record.
But this data won't be released until the quarter is over. Until then, economists have to fall back on other numbers like the PCE index to paint a picture.
April's data showed that as Americans didn't spend money, they saved a lot more. Personal savings as a percentage of disposable income soared to 33% in April, up from some 13% in March.
The dramatic increase was due in part to the increase in government benefits during the pandemic, the BEA said.
The country went into lockdown in the second half of March to limit the spread of coronavirus. Businesses shut down and laid off millions of workers. As of last week, one in four American workers has filed for first-time unemployment benefits over the past ten weeks.
This is weighing on how much consumers are spending.
Now that parts of the country are beginning to reopen, politicians and economists hope that many can return to work, businesses reopen and people will go back to spending more money. The next few months will show whether the math is as easy as that.
Economists predict it will take consumers some time to go back to their normal spending habits, including discretionary expenses on items like movie tickets or restaurant meals.
This is a developing story. It will be updated