Despite five months of a coronavirus (COVID-19) pandemic that shut down large sections of the economy, consumers have done a pretty good job of keeping up with their bills while not cutting back on spending.
But whether that continues, business executives say, may depend on whether Congress eventually comes through with another round of stimulus.
Gross Domestic Product (GDP) dropped by nearly a third in the second quarter, and more than 10 percent of the workforce is unemployed. However, the latest evidence suggests Americans are paying their credit card bills.
S&P Dow Jones Indices and Experian report that consumer credit defaults were unchanged at 0.66 percent through July. Most notably, the default rate on credit cards actually went down 37 basis points to 3.86 percent. The auto loan default rate rose seven basis points to 0.47 percent and the first mortgage default rate was three basis points higher at 0.44 percent.
That last number could be misleading, however, since mortgage late payments -- but not late enough to be in default -- are rising faster than normal. The Mortgage Bankers Association (MBA) reported this week that delinquencies on loans for one to four-unit residential properties are up 8 percent.
But the initial $1,200 per person direct stimulus payment, along with an extra $600 a week in unemployment benefits, has kept consumers spending over the last five months, even as economic uncertainty grows.
Stimulus benefitted Walmart
When it reported a huge increase in second-quarter profits on Tuesday, Walmart credited the increase to the money put in consumers’ pockets. Walmart CEO Doug McMillon said online sales surged 97 percent, with consumers buying groceries, spending money on entertainment, and spending money on their homes. The company acknowledged much of its good fortune was a direct result of the government stimulus.
Despite the second-quarter blowout earnings report, Walmart declined to give guidance for the third quarter, in large part because the stimulus under the CARES Act has run out. What consumers will do now is anyone’s guess.
“Stimulus was definitely impactful to the consumer in the second quarter, and we’re watching what’s going on in Washington, and how we’re going to progress with a new stimulus package,” Walmart Chief Financial Officer Brett Biggs told CNBC. “I think certainly it would be helpful for consumers.”
Congress went on its month-long August recess last week without reaching an agreement on an extension of coronavirus aid. It’s left millions of consumers -- and the retailers who depend on them -- hanging.