• Consumer spending was off 7.5% compared with February
  • Consumer spending is a key driver of the economy
  • Estimates on the drop in personal income was based on data from initial unemployment claims

Consumer spending – the key driver of the economy – recorded its steepest decline since 1959 in March, falling 7.5% as a result of the coronavirus pandemic compared to February, the Commerce Department reported Thursday. Personal income fell 2% as stay-at-home orders robbed people of jobs and changed spending habits.

The report, which accounts for just the first few week of pandemic mitigation efforts, followed Wednesday’s first-quarter gross domestic product results that indicated the economy contracted 4.8% -- a number that is expected to pale in comparison to results from the second quarter, which ends June 30.

The Department of Labor Thursday reported 3.5 million more initial unemployment claims were filed last week, bringing to 30 million the number filed since the effects of the pandemic took hold in mid-March.

“I think this is the tip of the iceberg,” Blerina Uruçi, a senior U.S. economist at Barclays, told the Wall Street Journal. “The worst is yet to come with the April data.”

The Bureau of Economic Analysis reported personal income fell $382.1 billion and spending fell by more than $1.1 trillion.

“The decline in March personal income and outlays was, in part, due to the response to the spread of COVID-19, as governments issued ‘stay-at-home’ orders. This led to rapid changes in demand, as businesses and schools switched to remote work or canceled operations, and consumers canceled, restricted or redirected their spending,” the BEA said.

The agency said the decrease in personal income was the result of an estimate of a decline in compensation based on DOL data.

“The reference period for the March 2020 survey preceded many of the COVID-19-related business closures and job losses that occurred in the latter half of March,” the BEA said. “As a result, BEA's estimates of March wages and salaries include adjustments that are intended to reflect activity not captured in the source data.”

The report said the drop in spending reflected a nearly $830 billion decrease in outlays for services and a nearly $105 billion reduction in spending for goods.

“Within services, the leading contributor to the decrease was spending on healthcare, including physician, dental and paramedical services. Other contributors to the decrease in services were spending on food services and accommodations as well as recreation services,” the BEA said.

“Within goods, the leading contributor to the decrease was spending on motor vehicles and parts. Partially offsetting the decreases in many categories of spending on goods was an increase in spending for food and beverages purchased for off-premises consumption.”