The US Economy in Danger of Recession with all these Layoffs and Slow Economy

Due to a fall in income, Americans slowed down spending in June. That is just before the new spike in Covid-19 cases.

Personal income and spending slowed down in June before the coronavirus cases started to surge again in July, along with a prompting an enhancement in layoffs.

According to the statement issued by Bureau of Economic Analysis on Friday, the income of American households has seen a decline of 1.1% from June to May, which is a little bit lesser than a 0.8% rate as predicted by FactSet poll. As the payments that were government-aided saw, fell from May, but they saw an increase in compensation after the reopening and rehiring the business.

The US Economy in Danger of Recession with all these Layoffs and Slow Economy
Image Credits- The Business Jounal

Consumer spending rose to 5.6% in June, which was slightly better than expected, but it is less than the pace of 8.5% in May.

As per the income and spending report, the data was incorporated into the second-quarter report on the gross domestic product on Thursday, which will be a red signal for investors. The fact about fell in income & expenditure even before the openings were rethought by some states & companies is troublesome. It also makes the expiration of benefits of increased unemployment even more worrisome.

The extra amount of $600 a week in assistance for the work of 30 million help in filling the gap between massive income and spending. These payments will expire on Friday and Democrats & Republicans have to reach a deal yet for extending this facility of extending payments partially.

The data of Labor Department showed that the number of applications for the jobless benefits increased for the second consecutive week and continue with the claim of 1 million in a week. As per economists, layoffs at this point will be a disaster compared to earlier layoffs. They also suggested that layoffs at this time are forcing businesses to fail rather than closing temporarily.

Rubeela Farooqi, chief U.S. economist at High-Frequency Economics, says the vision for household spending is uncertain at this recent shutdown induced by the virus that will result in layoffs. She termed the increasing unemployment benefits “an added shock to incomes,” contributing more bounce in third-quarter GDP.

The most notable thing here is the saving rate. The BEA said that as the percentage of personal income, personal savings is 19% in June compared to revised 24.2% in May. The way of looking at dignified savings is that many households have a stockpile growing and helping them in increasing demand. Confidence is missing in the consumers regarding the control of the virus and the border economy.

The saving is a luxury, so this pandemic has hurt many low-income households. So this high savings rate has not done much to save the economy and lower-income households from Covid-19.