The coronavirus pandemic remained front and center during the third quarter of 2020. With over 30 million coronavirus cases and 1 million deaths reported, global governments are still trying to grapple with the pandemic nearly 9 months since the first reported case in Wuhan, China. With greater emphasis on doing whatever it takes to starve off a deep recession, global governments are supporting its economies through increased spending, with some countries observing their largest fiscal deficits in years.

In the United States, the coronavirus pandemic has induced a social and economic divide, revealing the uneven socio-economic impact of the current pandemic on American societies. During the third quarter, federal unemployment benefits of $600 per week which was passed by Congress as a part of the CARES Act expired, leaving a large swath of the American population with greater uncertainty. As of today, lawmakers have been unable to come to an agreement to extend the benefits. However, progress is being made with the Democratic House recently passing a $2.2 Trillion stimulus bill that would make its way to the Senate for additional negotiations. As workers are feeling the pinch from the pandemic, total personal income took a $667 Billion (annualized) hit, falling 2.7% in August from the previous month. Additionally, US household real disposable income fell to $17.30 Trillion, a decline of 3.20% from the previous month. The fall in income was mainly due to a 14.8% decline in government transfers to households, which primarily resulted from the expiration of the federal unemployment insurance program.

US Household Disposable Income (#bn)

Despite the decline in household income, income levels today remain higher than pre-pandemic levels, resulting from higher personal savings rate supported by the boost from fiscal stimulus. Savings rate spiked to an all-time high at 33% during the height of the crisis and has since retreated to a tune of 14%. Nonetheless, a 14% personal savings rate is still significantly above the long-term historical average of 8%.

Personal Savings Rate (%)

Real consumer spending however increased 1% in August- driven by a 1.10% increase in services spending, flat in durable goods spending, and a 0.2% fall in non-durable goods spending. The increase in services spending is encouraging, highlighting that consumers are returning to restaurants and other consumer-facing businesses as parts of the economy continues to re-open. However, the overall increase in consumer spending was the weakest increase since the height of the pandemic, pointing to a potential slowdown in the recovery as virus cases begin to rise again and uncertainties ranging from lack of additional fiscal stimulus and presidential election volatility dominate the general environment.

Consumer Spending Change (% m/m)

With a higher personal savings rate and slowdown in consumer spending, consumer sentiment looks to be more conservative as many households are reluctant to spend due to the ongoing uncertainties today. This could drag consumption activity in the short-term but could act as a potential tailwind once the virus is under control and the economy operates back at its full capacity.