Consumer spending plunged in April, income jumped 10.5% driven by government stimulus

Yahoo Finance's Emily McCormick joins The First Trade to break down new economic data from the U.S. Bureau of Economic Analysis including personal income and personal spending during the month of April, in addition to Costco and Nordstrom earnings report.

Video Transcript

ALEXIS CHRISTOFOROUS: We have new economic data giving us a window onto consumer spending, and it fell off a cliff in the month of April, down by the most on record. Emily McCormick is here with the very latest. Emily, while this number is bad, I guess it's no big shock to the markets given the lockdown. So we are already seeing some signs of spending picking up, right?

EMILY MCCORMICK: Absolutely, Alexis. So this report was backward looking in that it did capture personal income and spending trends for April in the US. And it was an interesting report since we saw US personal income actually unexpectedly rise for the month of April by a wide margin, although personal spending did fall by a record.

So first off, taking a look at that personal-income number, we saw that jump 10 and 1/2% in April, whereas consensus economists had expected a 5.9% drop for the month following a 2.2% drop in income in March.

Now, this increase wasn't necessarily coming from private employers but from the government. The Bureau of Economic Analysis said, quote, "the increase in personal income in April primarily reflected an increase in government social benefits to persons as payments were made to individuals from federal economic-recovery programs in response to the COVID-19 pandemic."

So this jump in income did reflect these payments authorized under the CARES Act, including stimulus checks along with unemployment benefits. It also showed an annualized $3 trillion of government social benefits were provided in April, up from just $70.2 billion in March.

Now turning to the flip side, we saw personal spending drop in April by 13.6%. That was a record according to government data. Did extend March's 6.9% decline in personal spending, and we saw that the personal savings rate increased by a record 33%.

So overall, this report was a testament to the drought of consumer spending that we saw in the depths of the coronavirus pandemic last month. Alexis.

ALEXIS CHRISTOFOROUS: All right, Emily, I want to touch on two big earnings reports this morning, Costco and Nordstrom. Two different retailers, two very different earnings reports. Can you break down those for us?

EMILY MCCORMICK: Absolutely, Alexis, and interesting to see that both of these stocks actually are down in premarket trading. And that came even as Costco sales actually jumped 7.3% year over year in its last-reported results. We also saw comparable-same-store sales, excluding fuel, jump by nearly 8% and beat expectations and also rose over last year.

Now, the decline that we're seeing in shares could be because Wall Street may have been anticipating better results than we actually got just considering some of the pantry loading that we saw for Costco earlier in the year. We also did see earnings fall slightly below estimates since Costco cited higher costs due to wage and sanitation costs related to COVID-19.

Also wanted to give an update on reopenings for Costco's nonessential parts of its physical business, and that's the food court. So Costco said that most of its food courts are set to open in the middle of June, and it will start a slow rollout of some form of sampling, which, of course, had been the hallmark of the Costco shopping experience, starting in mid-June, but it won't be things on open trays and picked up by individual shoppers. So more details on that to come.

And then finally I want to take a look at Nordstrom earnings because those were quite a different story. We saw net sales down 40% over last year. Also swung to a wider-than-expected loss per share of over $3.30-- about $3.33. That did include charges associated with COVID-19.

Now, want to just give a little bit of a note from Paul Trussell of Deutsche Bank. He said these results were mixed with some positives including inventory down about 25% as management plans to realign inventory by the second quarter and also said that there was an additional $500 million of cash cost savings anticipated.

Now on the downside, we did see e-commerce up only about 5% in the quarter compared to accelerating growth at some of its competitors like Kohl's. So the overall lack of commentary as well around the quarter-to-date performance is something keeping Wall Street on the sidelines. We do see shares of Nordstrom down about 3% in premarket trading. Alexis.

ALEXIS CHRISTOFOROUS: All right, Emily, thanks so much.