You may be surprised to learn that Americans’ personal incomes rose sharply in April, up 10.5 percent from March on a seasonally adjusted basis, according to data released Friday from the Bureau of Economic Analysis. Disposable personal income (which is to say, income after taxes) rose 13 percent. Meanwhile, personal-consumption expenditures fell more than 13 percent, and that combination of more income and less spending meant American households set a record-high rate for personal savings, saving 33 percent of their disposable income in the month. Before the crisis, that figure was closer to 8 percent.
When you dig into the data, you can see how this happened: Employee compensation fell significantly as many workers were laid off or had their hours reduced, and proprietors’ income fell as many businesses closed or lost sales, but those declines were more than offset by an enormous increase in “other government social benefits to persons” — that is, regular unemployment insurance payments, expanded unemployment insurance under the CARES Act, and tax-rebate checks that went to most low- and middle-income households. And Americans have been largely saving that extra income, for a few reasons. People are understandably concerned that they may become unemployed or remain unemployed and will need those savings down the road. They are also unable to buy many of the products and services they normally would, and so households that feel financially able to spend may be holding onto cash pending the availability of the things they actually want.
In short, the CARES Act is working, for now, to shore up household finances. It’s not working for every single American who’s been hurt by the crisis — some people are ineligible for unemployment benefits or have had difficulty obtaining benefits they are entitled to; some small businesses don’t qualify for PPP loans or can’t make good use of them — but in the aggregate, the law is working to get enough money out into the economy so households have the spending power we will need to fuel the economic recovery. This helps explain why Americans tell pollsters they are patient about reopening the economy and are more worried about reopening too fast than too slowly, and it helps explain why the fraction of Americans telling pollsters their own personal finances are less than good has risen only modestly during a crisis that is severely battering economic output.
This can’t go on forever, but it can go on a while longer. The enhanced unemployment benefits are scheduled to run out on July 31, which is almost surely too early for the pace of an economic recovery where some industries are more ready to resume normal-ish activity than others. Many Americans, especially in hard-hit sectors like hospitality and transportation, are likely to need extended support as they wait for their old jobs (or jobs like their old jobs) to be available again. And if the epidemiological trajectory worsens, some parts of the country that have been reopening may need to close certain aspects of the economy again, delaying the recovery. Our government continues to borrow at extremely low interest rates, reflecting investors’ confidence that we will be able to service whatever debt we take out to meet this crisis. The CARES Act does not necessarily need to be extended on the precise terms that were written into it in March, but more support for businesses, individuals, and governments — including an extended period of enhanced unemployment benefits — will be needed before this crisis is over.