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April Income And Consumption: Near Bottom

Jun. 02, 2020 6:45 AM ETDAL, HTZ, MRNA16 Comments


  • April PCE was the worst economic report I have ever seen. Nominal PCE plunged by 14% on top of -7% in March. It is down 20% in 2 months. Unprecedented.
  • The big surprise in the income report was a huge jump in personal income driven by government assistance, offset by wage losses.
  • A third of after-tax income was saved. This is by far the highest reading on that. This is the key macro indicator going forward.
  • Even optimistic scenarios paint an ugly picture for the rest of 2020. The GFC took 19 months to return consumption to its previous peak.
  • Markets are underpricing the chance of a C19 second wave. I believe we will have one in a few weeks, centered around southern California, the upper Midwest, and the southeast.

Almost There

With BEA’s consumption and income reports at the end of last week, we now have April in full focus from the household end of things. I expect large revisions to the data, which we have already seen with Q1 and March.

  • The April jobs report, surveyed in the middle of the month, came in at 14.7% unemployment, but this likely understates the true number by the end of the month by about 5 percentage points.
  • Consumption took a further nosedive in April with some recreational services off 100% since February. There was some upward revision for March, but not substantial. Consumption is down 20% since February.
  • There was little sign of a recovery in April consumption, except in funeral services. I wish that was a joke.
  • Incomes made an astounding rebound, now way up since February on the back of unemployment insurance and the special pandemic programs.
  • But that income was largely saved, with the savings rate at an unprecedented 33% in April. This tells us quite a bit about the current bull market.
  • Housing, a huge category, held up in April, and it looks like most everyone made rent and mortgage payments.
  • Prices are cratering in most places, but food prices are spiraling up in response to demand and supply chain issues.

While I don’t think we are quite at the bottom yet, we are close to it. Perhaps May was it, once we see that data, which starts coming this Friday with the jobs report, surveyed a couple of weeks ago.

But in any event, this is the largest short-term change in consumer behavior of all time, and nothing comes close. How much remains in the absence of a safe, effective vaccine is up for grabs, and we’ll look at some scenarios for recovery.


This article was written by

Trading Places Research is a macroeconomics specialist with decades of experience identifying geopolitical factors that lead to market trends. With a focus on technology, he focuses on where the sector is headed as opposed to where investments are currently.

Trading Places is the leader of the investing group Long View Capital, where subscribers can expect explainers and portfolios on long-term secular trends in tech and regulation, a weekly newsletter, earnings coverage, macro coverage, and a lively chat partner. Explainer guides and portfolios in the group provide analysis for investing in AI, semiconductors, infrastructure, cybercrime, AR, the Metaverse and more. Learn More.

Analyst’s Disclosure: I am/we are long AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (16)

Robinhood is an excellent showcase to generate a contrarian viewpoint I agree
Trading Places Research profile picture
Now that I know their API will deliver this data (why?), I am fairly obsessed
G H profile picture
@Trading Places Research: shhhh. Things like that have a tendency to get "monetized". Nasdaq used to put very valuable info online for free download. It went behind a subscription paywall after a few months.
Trading Places Research profile picture
@G H The people who are monetizing it are the hedge funds with programmers on staff. There’s a pretty obvious algo play here that I am working on rn
G H profile picture
@Trading Places Research,

Thanks for a truly encyclopedic article.

The main effect (and, I suspect, intent) of the CARES program was actually to prevent a new financial collapse.

For tens of millions of Americans, automatic paycheck deposits into their accounts have stopped, but large automatic payments flowing out of those accounts - rent, mortgages (the ultimate destination of most rents), and credit card payments - have not. Many accounts would have gone overdrawn, and money velocity would have come to a screeching halt. Invisibly but importantly, those payments all go to creditors - e.g. the banking system.

In theory the banks would have had a windfall of overdraft fees, and creditors of late-payment fees, but in practice those fees would be collected many months from now or, in the case of induced bankruptcies, never.

As for the better-off folks who didn't actually need the money: as you've documented, some put it in the stock market. Some did nothing with it, but those increased balances don't really just sit there; banks buy Treasuries with some of it, and (indirectly) put the rest in the stock market.

I agree with you a second wave is coming; I think the affected regions will require new lockdowns, and whether it spreads from them, or their neighbors preemptively lock down to prevent spread, will determine how severe that wave will be. Additionally, the widespread protests and consequent overcrowded paddy wagons and holding cells are catalyzing outbreaks that otherwise wouldn't have occurred.

In the meantime, money will keep dribbling into the stock market as parts of the economy re-open at reduced (in many individual businesses, at least initially unprofitable) intensity. I'm curious whether you think the dribbling will be enough to support current valuations. My own feeling is that it will be stock-specific; I don't have a sense of the net effect on broad market ETFs. Certainly, if the second wave causes for example Apple to re-close many stores, that will be a bad omen.
Trading Places Research profile picture
@G H One of the big things I’m keeping an eye on is whether that savings bubble is just May 1 rent payments from unemployed not counted yet
I'm not following, on one hand you say people are taking money out of retirement plan to fund current expenses AND worried about their retirement, and on the other hand you say there's a savings glut that's driving the stock market higher AND food prices are rising where most people have to spend money.

Can't have it both ways.

Here's my take: the Fed is blowing smoke into the stock market (especially overnight), and the reason we have a crisis is that saving is way too low (one month of savings doesn't mean squat, most people I know have NOT saved their entire life). Once they run out of the free cash, the wheels will come off, just like the 1930's...and we all become like my grandparents were.
Trading Places Research profile picture
One is a present issue, the other long term.
@AjaxMag - it is interesting that for month of May, > 100% of total monthly gains in S&P 500 index were made in overnight trading
As a matter of fact, Fed's execution are usually done during lunch hours according to the release. Even tho I made fat stacks from strangle indices every night :p
Dan Owens profile picture
A contrarian view would be that come the end of June, when he PPP come to an end, another huge stimulus package gets done. And another huge stimulus in September October before the election. Especially if a whiff of deflation is still around. And all that stimulus will continue to inflate asset prices as people stop consuming and send money to their brokers. Maybe what finally breaks the market is the 'unlimited' resources of the Fed and government becomes limited by lack of TBill buyers or something else - a black swan that nobody is considering. But as long as Japan sets the bad boy debt-to-GDP example, we have a lot more money we can print. So buy stocks(!???)
Nice work, as usual. Thanks for taking the time to research, write and post.
Throw in some civil unrest, looting, and uninsured damage- that should be further upward pressure on savings rate.
It looks like the number of Robinhood users went from 9 million at 12/31 to about 22 million at the end of May.
Doubtful that is long term money, as you pointed out. However, why wouldn’t the first, not just the second, chart also return to closer to the pre-virus level?
It seems like people got stimulus/UI money, opened an account and made a quick buck but will soon exit and take their chips off the table.
Trading Places Research profile picture
@Emptynester fka mom1 Robinhood was growing at a nice clip before this all happened, likely displacing other brokers. It’s the rate of growth that’s at issue here, not absolute levels
Likrat ha-Tiferet profile picture
No problem
Great depression? what great depression?
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