The coronavirus pandemic could widen inequalities in the United States, Federal Reserve Chair Jerome Powell warned Friday, as government data showed consumer spending plunging by a record amount.
The world’s largest economy is in dire shape with more than 40 million layoffs since lockdowns were imposed in mid-March to stop the spread of COVID-19.
And with low-wage services workers bearing the brunt of the job losses, Powell warned the pandemic could be “a great increaser of inequality.”
“The pandemic is falling on those least able to bear its burdens,” he said in a videoconference.
“Everything we do is focused on creating an environment in which those people will have their best chance to keep their job, or get a new job, or maybe go back to their old job if they’ve been furloughed,” he said.
The unemployment rate skyrocketed from near-historic lows just before the pandemic hit to 14.7 percent in April, and Commerce Department data released Friday showed personal consumption plunging by a record 13.6 percent in the first full month of nationwide lockdowns.
Prices also dropped by 0.5 percent, the biggest drop in more than five years, according to the monthly personal income and outlays report, as the mass layoffs slowed consumption.
– Rising pessimism –
A separate survey showed consumers are becoming more pessimistic about the prospects for the post-pandemic recovery, yet another indicator of economic damage in addition to the more than 100,000 deaths from the coronavirus.
“Household spending will likely continue to be impacted going forward by a more cautious attitude by consumers as job losses continue to mount,” Rubeela Farooqi of High Frequency Economics said.
“However, we think April likely marked the bottom and activity could be less weak in May and June.”
Fueling the $1.89 trillion drop in consumption were decreases in spending on food and accommodation as people stopped traveling and going out.
And that drop sent the personal savings rate soaring by 33 percent with shoppers holding on to $6.15 trillion — money that could perhaps be unleashed to aid the economy’s recovery or stashed for hard times ahead.
Income took an incongruent turn, shooting up by 10.5 percent in April, but that spike was caused by the government’s massive $2.2 trillion CARES Act which boosted unemployment benefits and included direct payments to all Americans, including children.
When those payments are excluded along with other government social benefits, income actually fell 6.3 percent, which Harvard University economist Jason Furman said would be the largest decline ever.
And he warned on Twitter that if Congress fails to extend the expanded unemployment payments beyond their expiration in the coming weeks, “these numbers will turn ugly in August.”