US: Wages and salaries are beginning to recover – Wells Fargo

Data released on Friday showed a strong rebound in spending in May, however below expectations; while personal spending retreat. Analysts at Wells Fargo, consider the slide in personal income was not as bad as feared, as a rise in jobless benefits, but also wages and salaries, offset the drop from stimulus payments going away. 

Key Quotes: 

“The $874.2 billion or 4.2% drop in personal income is largely a function of the timing of CARES Act stimulus checks, which mostly were accounted for in the prior, month. Overall transfer payments fell, although admittedly not as much as we were expecting. The “other” line which captures the stimulus dropped almost $2 trillion, but an $825 billion increase in unemployment benefits cushioned the blow.”

“The final tally for transfers still showed a drop of just over a trillion dollars; a staggering sum, though keep in mind these are annualized figures. By any reckoning though, the income numbers are being heavily influenced by both the disruptions from the pandemic, but also the varying government policies to provide a safety net.”

“One of the more encouraging developments is that wages and salaries are beginning to recover. After a record decline in this category last month, wages and salary income shot up 2.5% in May. That puts the level about 8.6% below the February (pre-COVID) peak.”

“Consumer spending is sprinting off the starting line in the race to get back to pre-COVID levels. Consumer spending increased 8.2% in May which is a record by a country mile.”

“May was also the largest monthly jump on record for most spending categories except a few like groceries (which had its best month amid panic buying in March of this year).”