Tag Archives: stimulus checks

Stimulus checks boost U.S. consumer spending; inflation warming up

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. consumer spending rebounded in March amid a surge in income as households received additional COVID-19 pandemic relief money from the government, building a strong foundation for a further acceleration in consumption in the second quarter.

Other data on Friday showed labor costs jumped by the most in 14 years in the first quarter, driven by a pick-up in wage growth as companies competed for workers to boost production. The White House’s massive $1.9 trillion fiscal stimulus and rapidly improving public health are unleashing pent-up demand.

“While we aren’t completely out of the woods yet, today’s report shows the beginning of an economic rebound,” said Brendan Coughlin, head of consumer banking at Citizens in Boston. “Assuming no setback in the continued rollout of the vaccines, U.S. consumers are well-positioned in the second half of the year to stimulate strong economic growth across the country.”

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased 4.2% last month after falling 1.0% in February, the Commerce Department said. The increase was broadly in line with economists’ expectations.

The data was included in Thursday’s gross domestic product report for the first quarter, which showed growth shooting up at a 6.4% annualized rate in the first three months of the year after rising at a 4.3% pace in the fourth quarter. Consumer spending powered ahead at a 10.7% rate last quarter.

Most Americans in the middle- and low-income brackets received one-time $1,400 stimulus checks last month which were part of the pandemic rescue package approved in March. That boosted personal income 21.1% after a drop of 7.0% in February.

A chunk of the cash was stashed away, with the saving rate soaring to 27.6% from 13.9% in February. Households have amassed at least $2.2 trillion in excess savings, which could provide a powerful tailwind for consumer spending this year and beyond.

The government’s generosity and expansion of the COVID-19 vaccination program to include all American adults is lifting consumer spirits, with a measure of household sentiment rising to a 13-month high in April.

Wages are also increasing, which should to help to underpin spending when stimulus boost fades.

In a separate report on Friday, the Labor Department said its Employment Cost Index, the broadest measure of labor costs, jumped 0.9% in the first quarter. That was the largest rise since the second quarter of 2007.

The ECI is widely viewed by policymakers and economists as one of the better measures of labor market slack and a predictor of core inflation as it adjusts for composition and job quality changes. Last quarter’s increase was driven by a 1.0% rise in wages, also the biggest gain in 14 years.

Wages in the accommodation and food services industry, hardest hit by the pandemic, soared 1.7%.

Despite employment being 8.4 million jobs below its peak in February 2020, businesses are struggling to find qualified workers as they rush to meet the robust domestic demand.

U.S. stocks were lower after a recent rally. The dollar rose against a basket of currencies. U.S. Treasury prices were higher.

INFLATION RISING

Federal Reserve Chair Jerome Powell on Wednesday acknowledged the worker shortage saying “one big factor would be schools aren’t open yet, so there’s still people who are at home taking care of their children, and would like to be back in the workforce, but can’t be yet.”

Economists agree and expect the rising wages to contribute to higher inflation this year.

The strengthening demand and the dropping of last year’s weak readings from the calculation lifted inflation last month.

The personal consumption expenditures (PCE) price index excluding the volatile food and energy component increased 0.4% after edging up 0.1% in February. In the 12 months through March, the so-called core PCE price index increased 1.8%, the most since February 2020.

The core PCE price index is the Fed’s preferred inflation measure for its 2% target, which is a flexible average.

Powell reiterated on Wednesday that he expected higher inflation will transitory. But some economists have doubts.

“While labor costs are hardly getting out of hand, there is clearly more wage pressure in the economy at present than the early stages of the past cycle,” said Sarah House, a senior economist at Wells Fargo in Charlotte, North Carolina.

“Stronger labor cost growth even before the economy hits full employment is a reason to think that even after the reopening-fueled pop this year, inflation is likely to settle above the anemic rate of the past cycle.”

Households last month spent more on motor vehicles and recreational. They also visited restaurants.

When adjusted for inflation, consumer spending rebounded 3.6% last month after falling 1.2% in February. The rebound in the so-called real consumer spending sets consumption on a higher growth trajectory heading into the second quarter.

Most economists expect double-digit growth this quarter, which would position the economy to achieve growth of at least 7%, which would be the fastest since 1984. The economy contracted 3.5% in 2020, its worst performance in 74 years.

(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Paul Simao)

U.S. Congress wrangles over details of coronavirus economic aid as deadline approaches

By Susan Cornwell

WASHINGTON (Reuters) – After months of feuding and with a weekend deadline fast approaching, U.S. congressional negotiators were wrangling over details of a $900 billion COVID-19 aid bill that leaders have vowed to pass before going home this year.

The legislation is expected to include $600 to $700 stimulus checks, extend unemployment benefits, help pay for vaccine distribution and assist small businesses struggling in a crisis that has killed more than 304,000 Americans and thrown millions out of work.

Congress passed $3 trillion in economic aid last spring, but lawmakers have argued ever since about how much more may be needed. With rates of COVID-19 infections soaring to new highs, and with the American economy showing signs of weakening, leaders of both parties in the House of Representatives and the Senate this month began to compromise in hopes of passing a bill.

“We’re making progress,” House Speaker Nancy Pelosi told reporters on Wednesday evening. But she declined to predict a timeline for finishing the COVID-19 aid proposal, saying, “We’ll be ready when we’re ready.”

Lawmakers were aiming to attach the measure to a massive spending bill that must pass by Friday night to avert a government shutdown.

The House Democratic leader, Steny Hoyer, said that if the Friday midnight deadline is not met, he could envision another stopgap spending bill of three or four days’ duration to keep government agencies open while negotiations continue.

“I don’t want to shut down the government,” Hoyer said.

STICKING POINTS

The rough outlines of the legislation emerged from various lawmakers’ accounts, but negotiators and aides were still working on several sticking points.

Two contentious issues appear to have been left by the wayside. The measure was not expected to include a dedicated funding stream for state and local governments, which has long been a Democratic priority but opposed by Republicans, or new protections for companies from lawsuits related to the pandemic, something high on the Republican agenda.

But an argument broke out over whether to increase reimbursements from the Federal Emergency Management Agency to local governments for expenses related to COVID-19, like personal protective equipment for schools. Republicans were wary.

“If it’s simply a way of disguising money for state and local governments, we’ll have a lot of opposition,” said the Senate’s No. 2 Republican, John Thune.

Thune said the proposed direct payments to individuals would be around $600 to $700 per person, roughly half the amount lawmakers approved last spring. Some lawmakers such as Senator Bernie Sanders, an independent who caucuses with Democrats, were pushing for more.

Lawmakers were discussing $300 weekly in federal unemployment benefits – which would also be half the amount passed last spring, that expired in the summer – and about $330 billion to help small businesses, Thune said.

The $900 billion price tag for the package would be paid for by $600 billion in repurposed funds from other parts of the budget, and $300 billion in new money, according to a senator privy to the discussions.

The U.S. economy is clearly weakening after an initial rebound from recession triggered by the pandemic earlier this year. Consumer spending, buoyed through the summer and early fall by more than $3 trillion in federal assistance, has hit a wall as new lockdowns limit business activity and keep people home.

The Federal Reserve on Wednesday promised to keep funneling cash into financial markets further into the future to fight the recession, even as policymakers’ outlook for next year improved following initial rollout of a coronavirus vaccine.

(Reporting by Susan Cornwell; editing by Grant McCool)

White House says ‘not optimistic’ about COVID-19 aid, talks with Congress are off

WASHINGTON (Reuters) – White House chief of staff Mark Meadows on Wednesday said he was not optimistic that a comprehensive deal could be reached on further COVID-19 financial aid and that the Trump administration backed a more piecemeal approach, even as he said negotiations with Congress were over.

“We’re still willing to be engaged, but I’m not optimistic for a comprehensive deal. I am optimistic that there’s about 10 things that we can do on a piecemeal basis,” Meadows told Fox News in an interview.

Meadows did not say what 10 items the administration wanted to tackle, but reiterated President Donald Trump’s position tweeted late Tuesday night that he would back separate legislation addressing airlines, small businesses and stimulus checks for individuals.

Trump called off talks with lawmakers on pandemic aid in a tweet on Tuesday, rattling Wall Street as U.S. stocks sank. He later pulled back saying he would support a few stand-alone bills.

U.S. stock indexes appeared set to open higher on Wednesday, and airline stocks were also higher.

“The stimulus negotiations are off,” Meadows later told reporters at the White House on Tuesday. “Obviously we’re looking at the potential for stand-alone bills. There’s abut 10 things that we agree on and if the Speaker is willing to look at it on a piece-by-piece basis then we’re willing to look at it,” he said referring to U.S. House Speaker Nancy Pelosi.

The Democratic-led House has already passed full legislation seeking a wide range of aid as the novel coronavirus continues to spread, infecting an estimated 7.5 million Americans and killing more than 210,600 — the highest in the world.

Pelosi on Tuesday said lawmakers would pass more aid, despite Trump’s refusal to negotiate.

(Reporting by Lisa Lambert and Susan Heavey; Editing by Alex Richardson and Chizu Nomiyama)

Fed’s Powell, Mnuchin see promise in reallocating unused aid

By Ann Saphir and Howard Schneider

(Reuters) – Hundreds of billions of dollars in unused funds from a $2.3 trillion coronavirus aid package could be reallocated to help U.S. households and businesses, Federal Reserve Chair Jerome Powell and Treasury Secretary Steven Mnuchin said on Thursday.

About $200 billion in money allocated to the Treasury to backstop U.S. central bank loans remains uncommitted, Powell and Mnuchin said in a hearing before the Senate Banking Committee.

Mnuchin also pointed to the $130 billion left in the now-expired Paycheck Protection Program to help small businesses, funds he said would his first priority to get approval from Congress to tap and send to needy firms.

In addition, Powell, in response to a question, said most of the $75 billion allocated to the Fed’s largely untapped Main Street Lending Program remains unused.

The focus on reallocating those sums has emerged as Congress has remained deadlocked over providing new fiscal relief that Powell said could make the difference between continued recovery and a much slower economic slog.

While households are spending what’s left of their stimulus checks and unemployment benefits, “the risk is they will go through that money, ultimately, and have to cut back on spending and maybe lose their home or their lease,” Powell said.

“That is the downside risk of no further action. We don’t see much of that yet, but it could well be out there in the not-too-distant future,” Powell said in the last of three hearings in which he testified before Congress this week.

Asked by Republican Senator Mike Crapo, the committee chair, what the best use of the unused funds might be, Powell said it could be spent to help small businesses and households.

Prospects for new fiscal aid are dim less than six weeks before the Nov. 3 presidential election.

(Reporting by Howard Schneider, Ann Saphir; Editing by Paul Simao)