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Personal consumption expenditures (PCE) — the value of goods and services purchased by or for people — in the US grew 8.2% in May compared with April, marking the metric’s first positive result since January, per a release from the US Bureau of Economic Analysis.
PCE growth was flat month-to-month in February, before dropping 6.6% in March and 12.6% in April as the coronavirus pandemic took its toll. These results, combined with Mastercard’s announcement that its US switched volume grew on a year-over-year (YoY) basis in recent weeks, point toward a recovery in consumer spending that’s promising for the future performances of payments companies and merchants.
Despite these encouraging results, there are signs suggesting that consumer spending in the US could drop again in the coming months.
US personal income growth fell in May, so consumers will have less funds to spend in June and future months. Personal income growth dropped 4.2% in May compared with April, when it grew 10.8% from the prior month. US stimulus payments started to go out in April, which accounts for much of the sudden drop in income in May. But with income sliding again, and there currently being no plans for another round of stimulus payments, June and subsequent months likely won’t see the same bump in PCE that was recorded in May, especially because millions of US consumers remain unemployed. And PCE could drop further in the coming months since the country’s unemployed population is set to stop receiving an extra $600 in unemployment insurance in July.
The rising number of coronavirus cases in many US states may slow reopening plans and cause reclosings, which would cut into consumer spending. Apple is reclosing some stores in markets where the number of coronavirus cases is climbing quickly, a county in Pennsylvania that includes Pittsburgh has banned the on-site sale of alcohol at bars and restaurants, and San Francisco has delayed reopening plans for businesses like barbershops and outdoor bars. If cases continue to rise, more retailers may close their stores and local governments may slow or reverse their reopening plans, limiting the places consumers can make purchases, likely negating some of the improvements in consumer spending.
Because consumer spending will likely remain volatile as the pandemic continues, issuers need to adjust their rewards offerings to drive as much spend as possible. Issuers need to push consumers to spend as much as possible to save their performances while the pandemic deflates consumer spending, especially in key categories like travel.
Many issuers are offering financial relief programs, which can …read more
Source:: Business Insider