USA: the decline in household spending gives a glimpse of the next crisis
The US has recently presented positive data, especially regarding unemployment, with a decline in the number of people applying for unemployment benefits and those who are asking for them continuously, especially for the states that have started cutting subsidies themselves: the economy has recovered somewhat and, with the subsidies cut, more workers have to get back into business
The decline in subsidies is stronger in republican states that have cut them without waiting, like the democratic ones, for the end-September deadline set by the Biden government.
So the states are moving, Republicans in the lead, towards a normalization of the labor market. However, the transition to a normal labor market will be painful and where the jump from full availability to full employment will be accompanied by a sharp drop in spending which could trigger the next recession (2 months).
Which brings us to the bad news. Total credit card spending based on aggregate consumer credit and debit card data shows that, as would be expected, states where generous government handouts have ended are seeing a steep drop in spending, especially among unemployed.
As Bank of America notes, in states where benefits were cut, spending was weaker for those receiving unemployment benefits:
In the states where there has not yet been a reduction in subsidies, the decline in consumption and the use of credit cards has not yet occurred, as can be seen from this graph
If the macro-level impact of these cuts has not yet been seen, it is because the Child Tax Credit subsidy was paid in mid-July and this had a positive effect on spending. This is why spending, at the aggregate level, has not yet been heard: the federal state has provided a little extra funding. In addition, there was an acceleration in spending of the $ 2,500 billion left over from previous programs that were not fully implemented.
Either way, one thing is clear: Once the millions of US Democratic families who are still claiming sustained and increased unemployment see their emergency unemployment benefits expire in six weeks on September 4th, expect a sharp slump in overall spending. . This could push the current reflation peak towards total stagflation, as commodity prices are still high due to logistical problems. Wages are set to plummet as millions of unemployed workers – no longer living on state subsidies – return to the workforce and instantly change the balance between supply and demand for labor. We will have a decline in wages in the face of an increase in the costs of raw materials, with the consequent fall in purchasing capacity and a situation very similar to that of 1929.
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The US article : the decline in household spending gives a glimpse of the next crisis comes from ScenariEconomici.it .
This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/usa-il-calo-della-spesa-delle-famiglie-fa-intravvedere-la-prossima-crisi/ on Mon, 26 Jul 2021 09:08:14 +0000.