US consumer spending tanks; savings hit record high

WASHINGTON (REUTERS) – US consumers cut spending by the most on record for the second straight month in April while boosting savings to an all-time high, and the growing frugality reinforced expectations the economy could take years to recover from the Covid-19 pandemic.

The report from the Commerce Department on Friday (May 29), together with news that monthly exports collapsed, left economists anticipating the largest contraction in gross domestic product in the second quarter since the Great Depression of the 1930s.

Data has also been dismal this month on the labour market, manufacturing production and homebuilding.

The Commerce Department said consumer spending, which accounts for more than two-thirds of US economic activity, plunged 13.6 per cent last month, the biggest drop since the government started tracking the series in 1959. It eclipsed the previous all-time decrease of 6.9 per cent in March.

Economists polled by Reuters had forecast consumer spending would plummet 12.6 per cent in April. Spending was depressed by a decrease in outlays on healthcare as dental offices closed and hospitals postponed elective surgeries and non-emergency visits to focus on patients suffering from Covid-19.

The disease has killed over 100,000 people in the United States, the highest death toll in the world.

Spending declined at restaurants, which have shifted to delivery and pick-up service only, and hotels and motels.

Spending on food and beverages fell in April.

But the Covid-19 crisis boosted incomes for consumers in April as the government’s historic fiscal package worth nearly US$3 trillion (S$4.2 trillion) doled out one-time US$1,200 cheques to millions of people and boosted unemployment benefits for the roughly 31 million out of work to cushion against economic hardship wrought by the pandemic.

Personal income surged a record 10.5 per cent last month after falling 2.2 per cent in March. Savings soared to a historic US$4 trillion, with the saving rate hitting a record 33 per cent. But business closures weighed on wages, which dropped 8 per cent in April after falling 3.5 per cent in March.

“The saving rate represents both opportunity and a warning,” said Chris Low, chief economist at FHN in New York.

“If the economy reopens quickly without consequence these savings represent considerable spending power in the second half. If it takes longer to reopen the economy, these savings will be used for sustenance over the next few months.”

The economy is gradually reopening after nonessential businesses were shuttered in mid-March to slow the spread of Covid-19, raising hope economic slump was nearing a bottom.

Stocks on Wall Street were trading lower as investors braced for a US response to China’s national security law on Hong Kong. The dollar fell against a basket of currencies, while US Treasury prices rose.

TRADE COLLAPSES

In a second report on Friday, the Commerce Department said goods exports tumbled 25.2 per cent to US$95.4 billion in April, a 10-year low. The broad decline in exports was led by a 65.9 per cent collapse in shipments of motor vehicles and parts. That outpaced a 14.3 per cent tumble in imports. As a result, the goods trade deficit widened 7.2 per cent to 69.7 billion last month.

The wider goods trade deficit is likely a drag on second quarter gross domestic product, which economists expect could drop at as much as a 40 per cent rate, a pace not seen since the 1930s.

The economy contracted at a 5 per cent annualised rate last quarter, the deepest pace of decline in GDP since the fourth quarter of 2008. Consumer spending tumbled at a 6.8 per cent rate, the sharpest drop since the second quarter of 1980.

With consumer spending depressed in April, inflation pressures were weak, with the personal consumption expenditures (PCE) price index excluding the volatile food and energy components falling 0.4 per cent. That was the largest drop since September 2001 and followed an unchanged reading in March.

In the 12 months through April, the so-called core PCE price index rose 1 per cent, the smallest gain since December 2010 which followed a 1.7 per cent increase in March. The core PCE index is the Federal Reserve’s preferred inflation measure. The US central bank has a 2 per cent inflation target.

“The core PCE decline reflects some big collapses in the prices of a limited number of the most-affected services,” said Andrew Hunter, a senior US economist at Capital Economics.

“It is not evidence of a widespread Japanese-style deflation ensnaring America.”

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UOB sees 406% jump in sales of online investment products

Amid Covid-19’s social distancing and circuit breaker measures, United Overseas Bank (UOB) has seen a spike in demand for its online investment products, with the number of such purchases jumping 406 per cent in the first quarter of this year from a year ago.

The strongest demand has been for gold and unit trust products as investors seek defensive and diversified assets, the bank said in a media release today.

Gold purchases made via the bank’s digital services grew more than 20 times in March compared with the year before. Digital applications for unit trusts also reached a record for the bank in the same month. Customers can buy gold and silver savings on UOB’s Personal Internet Banking (PIB) platform and UOB Mighty app. They can also purchase gold bars and gold bullion coins as well as unit trusts directly through UOB’s PIB service.

UOB said its wealth advisory team has stepped up its support to customers looking to protect their investments amid Covid-19 uncertainty. For one thing, advisers have been proactively calling wealth banking and privilege banking clients to review their investment portfolios.

Since mid-March, the bank has seen a 70 per cent increase in portfolio reviews, compared with those completed between January and mid-March.

Said Ms Jacquelyn Tan, UOB’s head of personal financial services, Singapore: “At a time when wealth advisers around the world are reacting to calls from worried clients, we are instead engaging our managed clients proactively to address their questions and concerns and to help them on their investments.

“As part of our discussions, we take clients through possible market scenarios and the long-term implication of the downturn on their investments.”

To keep customers informed on risks and opportunities, given uncertain and volatile market conditions, UOB has also increased the investment insight reports it provides to clients. The reports contain information such as the bank’s views on future market moves and recommended investment strategies.

In March and last month, six videos and written reports providing advice from UOB’s investment advisory team were sent to clients addressing investment opportunities amid the outbreak.

UOB said its Covid-19-related video updates have attracted nearly four times the usual view rate of the bank’s previous videos.

This spike in interest in investment information is also reflected in Google Trends data which shows searches on investing in Singapore jumped 67 per cent year on year in March and last month, said the bank.

It is also using technology to help customers navigate the challenges of investing in uncertain times, such as its proprietary Portfolio Advisory Tools (PAT), which draws on more than 12 years of historical market data to simulate the expected performance of an investment portfolio against various economic scenarios.

As market conditions continue to fluctuate due to Covid-19, the tool helps advisers project how market changes are affecting future outcomes, said UOB. It added that one in three potential clients who receive advice through PAT have signed on as wealth clients.

Read the latest on the Covid-19 situation in Singapore and beyond on our dedicated site here.

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China coronavirus cover up: Tory MP points to graph – confronts China on ‘patient zero’

The MP took to Twitter to voice his concerns and posted an image of a graph showcasing the COVID-19 death rates in each country. He said: “China attempted to cover up the initial COVID-19 outbreak. It’s made no effort to identify who ‘patient zero’ was. Its daily ‘official’ figures leave more questions than answers.”

The American intelligence community concluded in a classified report given to the Whitehouse that China had faked the numbers on purpose.

As of Wednesday, China — the epicentre of the global pandemic — has claimed to have under 83,000 cases and around 3,300 deaths.

That’s significantly less than the U.S., which has reported more than 200,000, or Italy with 110,000, or Spain with 102,000.

In recent weeks, Wuhan has reported no new cases almost every day, a drop from the thousands it reported every day until mid-February, and the hundreds into early March.

China rejected the American intelligence community’s conclusion that Beijing concealed the extent of the coronavirus epidemic, and accused the US of seeking to shift the blame for its own handling of the outbreak.

Foreign Ministry spokeswoman Hua Chunying on Thursday defended as “open and transparent” China’s response to the virus first identified in December in the central Chinese city of Wuhan.

She was responding to a Bloomberg News report saying that the U.S. intelligence community had concluded in a classified report to the White House that Beijing under-reported both total cases and deaths from the disease.

At a regular briefing in Beijing, Hua said: “Some US officials just want to shift the blame.

“Actually, we don’t want to fall into an argument with them, but faced with such repeated moral slander by them, I feel compelled to take some time and clarify the truth again.”

Hua questioned the speed of the US response to the virus after banning arrivals from China on February 2.

She said: “Can anyone tell us what the US has done in the following two months?”

China’s public reporting on cases and deaths is intentionally incomplete, Bloomberg reported Wednesday, citing three officials, who asked not to be identified because the report is secret.

Two of the officials said the report concludes that China’s numbers are fake.

The report was received by the White House last week, one of the officials said.

The number of confirmed coronavirus cases in the UK has reached more than 108,000. A total of 14,576 people confirmed to have had the virus have died.

The actual number of cases is estimated to be much higher though – as it is mostly those in hospital and some NHS and care home staff who are currently being tested.

More than 341,000 people have been tested for coronavirus so far. 

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