The government will stop paying an additional $600 per week in unemployment benefits on July 31. Economists estimate about 26 million people, two-thirds of whom do not qualify for the regular 26-week state unemployment insurance benefits, would be left without income.
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About 30.6 million people, roughly a fifth of the labor force, were collecting unemployment checks in the first week of June. Government transfers to households totaled $1.1 trillion last month compared to $3 trillion in April.
Wages increased 2.7% after dropping 7.6% in April. But with record unemployment, last month's gains will likely fizzle.
Consumer spending in May was funded from savings, which decreased by $1.9 trillion. The saving rate dropped to a still-high 23.2% from a record 32.2% in April. Historically high savings could support spending. Economists, however, caution that uncertainty amid soaring COVID-19 infections could prompt consumers to hunker down and conserve their income.
Inflation remained weak in May, with food prices moderating and the cost of energy goods and services declining for a fifth straight month. The personal consumption expenditures (PCE) price index excluding the volatile food and energy components edged up 0.1% after falling 0.4% in April.
In the 12 months through May, the so-called core PCE price index rose 1.0%, matching April's gain. The core PCE index is the Federal Reserve's preferred inflation measure. The U.S. central bank has a 2% inflation target.
When adjusted for inflation consumer spending surged a record 8.1% in May after tumbling 12.2% in April. Still the so-called real consumer spending remained 11.2% below its pre-pandemic level.
That kept intact economists' expectations for the sharpest plunge in consumer spending and economic growth in the second quarter since the Great Depression.
Economists expect GDP could shrink at as much as a 46% annualized rate in the second quarter. The economy contracted at a 5% pace in the January-March quarter, the deepest downturn since the 2007-09 Great Recession.
