SPENDING TANKS, SAVINGS SOAR


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Spooked by the prospect of losing their jobs and another economic shutdown this fall, Americans are cutting spending, paying off installment debt, and hoarding cash.
Retail sales cratered in April, falling 16.4 percent from March, an unprecedented one-month plunge, and 21.4 percent lower than a year earlier. March’s decline was 8.3 percent.
Furniture sales retreated 58 percent, electronics sales 60 percent, and clothing sales almost 79 percent.
Grocery stores sales shrank 13.2 percent as many items became unavailable and people tightened spending as they lost jobs or saw their work hours diminish.
The April drop was much worse than most analysts had predicted.
The Flip Side is Fear
While sales dropped, the U.S. savings rate shot from 8 percent of income in February to 13.1 percent in March, an increase of more than 60 percent and the highest rate since November 1981.
The rate reflects the results of an April survey by the Federal Reserve Bank of New York, showing that 21 percent of Americans fear losing their jobs in the next 12 months. Among those afraid of being out work, 47 percent thought they could find a new berth within three months, a drop of 6.1 percent from March, the largest one-month slump ever recorded.
The survey reported “considerable deteriorations” in people’s view of their economic future, including record low outlooks for expected earnings, income, and new personal spending.
Those fears, in part, brought down the country’s outstanding balance of revolving debt, excluding mortgages, by an annualized rate of 31 percent, the largest one-month percentage drop since January 1989.
Visa reported 31 percent fewer credit card charges in April, with fuel, restaurant, and entertainment charges dropping by 50 percent and travel-related charges by 80 percent.
JPMorgan Chase noted a 40-percent decline in the amount of money charged to its cards, with spending on nonessential items plunging by half, and a 70-percent slide in restaurant spending.
The cuts were larger among high-income households than smaller ones, the bank said.
More than 16 percent of Americans were worried about missing a minimum debt payment in the next three months, according to the Federal Reserve survey. This represents a more than 25-percent rise from the average monthly number of 11.9 percent.
In an economy in which consumer spending accounts for up to 70 percent of GDP, fewer purchases and suddenly higher rates of saving are likely to slow any recovery from the economic shutdown.
TREND FORECAST: The Fed also reported that U.S. factory output dropped 13.7 percent in April, the greatest one-month slide since 1919, after World War I ended.
But even that will not clear the unsold inventory of sofas, seasonal clothing, locked down retail outlets still stocked with unsold goods, cell phones, and millions of other items pilling up in warehouses around the world.
Prices will stay low, with retailers’ margins squeezed tight through the end of this year, driving more stores out of business. (See “Retail Apocalypse” article in this issue.) Prices will fall further as retailers compete to get cash out of their unsold inventory, fueling the deflationary cycle that will last deep into 2021.

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