By Tyler Durden | 1 October 2020
ZERO HEDGE — As we warned back in June in “‘Look Out Below’: Why The Economy Is About To Fly Off A Fiscal Cliff“, and again last week in “Failure To Launch New Fiscal Stimulus Would Have Catastrophic Consequences For The US Economy“, the US consumer — having grown accustomed to the $600 in weekly Federal Pandemic Unemployment Compensation (FPUC), which expired at the end of July, is suddenly running on fumes, which will only get worse if there is no fifth fiscal stimulus deal struck by Dec. 31, when two more anchor stimulus pillars — the Pandemic Emergency Unemployment Compensation (PEUC) and Pandemic Unemployment Assistance (PUA) — also expire.
So far the US economy has not suffered a consumption hit in the two months following the fiscal cliff, with personal spending in September once again surprising to the upside, which in turn is likely preventing Congress from reaching a deal, especially with stocks not too far from all time highs.
Indeed, as we noted earlier, and as Morgan Stanley’s Ellen Zentner wrote subsequently, nominal personal income growth in August was reported just below consensus expectations, declining by 2.7% (vs. consensus at -2.5%), with July upwardly revised by 10bp to +0.5%M. Real disposable personal income fell 3.5%M in August as well. The decrease in income was largely due to the end of the $600/week supplemental unemployment insurance benefits, which we first warned about back in June. Partially offsetting this decline was further improvement in the labor market in August, lifting wage and salary income by 1.3%M for the second consecutive month. […]