US consumer spending surges 8.2% in May after record plunges due to COVID-19 - but economists warn it isn't sustainable as income drops 4.2% and unemployment aid expires next month

• US consumer spending was up 8.2% in May, according to the Commerce Department report released Friday 
• Last month's rebound in consumer spending followed drops of 6.6% in March and 12.6% in April when COVID-19 shuttered businesses and forced layoffs
• Since then, many businesses have reopened, drawing consumers back into shops and restaurants and restoring some lost jobs 
• The latest report showed Americans stepped up their spending in May despite a 4.2% decline in personal income, which had soared by 10.8% the previous month
• Income jumped in April on the strength of unemployment aid and one-time $1,200 stimulus checks 
• The $600 a week in aid will expire after July and it is unclear whether consumers will keep spending freely without that and the stimulus checks

American consumers increased their spending by a sharp 8.2 percent in May but the gains are not likely to be sustainable with income dropping and expected to decline further as millions lose COVID-19 unemployment aid starting next month. 

The Commerce Department said on Friday consumer spending, which accounts for more than two-thirds of US economic activity, jumped 8.2 percent last month. 

Consumer spending tumbled 12.6 percent in April, the largest drop since the government started tracking the series in 1959, and 6.6 percent in March when coronavirus shuttered businesses, forced millions of layoffs and sent the economy into a recession.  

Since then, many businesses have reopened, drawing consumers back into shops and restaurants and restoring some lost jobs.

The Commerce Department report released on Friday showed that Americans stepped up their spending in May despite a 4.2 percent decline in personal income, which had soared by 10.8 percent the previous month. 

Income had jumped in April on the strength of billions of dollars in support through government payments in the form of unemployment aid as well as one-time $1,200 stimulus checks. In May, those stimulus checks were no longer counted as income for most people.

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American consumers increased their spending by a sharp 8.2% in May. The rebound in consumer spending followed spending drops of 6.6% in March and 12.6% in April when the viral pandemic shuttered businesses. Pictured are shoppers waiting for Macy's to open in New York

Besides whatever unemployment aid states are providing to the 30 million jobless Americans, the federal government is providing $600 a week in additional benefits. 

The federal money has pumped nearly $20 billion a week into the economy and enabled many of the unemployed to stay afloat. But the $600 a week in aid will expire after July and Trump administration officials have said they oppose an extension.

Without the stimulus checks or an extension of unemployment aid, it's unclear whether consumers will keep spending freely. 

In testimony to Congress last week, Federal Reserve Jerome Powell said he thought Congress should consider providing some form of extended unemployment benefits beyond their typical six-month period, on the assumption that joblessness will likely still be quite high by year's end.

Last month's rise in consumer spending also coincides with a sudden surge in coronavirus cases that's forcing states and businesses to consider scaling back or even reversing the re-openings. 

If an escalation of the pandemic does force another round of widespread business shutdowns, fewer people would shop, travel, eat out or attend large events. That would reverse any rebound in spending and would further weaken the economy.

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The Commerce Department report released on Friday showed that Americans stepped up their spending in May despite a 4.2% decline in personal income, which had soared by 10.8% the previous month

Consumer spending is closely watched because it accounts for about 70% of economic activity. Despite the increased spending in May, economists have estimated that the economy, as measured by the gross domestic product, is contracting at a roughly 30% annual rate in the April-June quarter after shrinking at a 5% percent rate in the January-March period. That would be, by far, the worst U.S. quarterly contraction since record-keeping began in 1948.

In February, the economy fell into a deep recession, according to the National Bureau of Economic Research, the association of economists that is the official arbiter of recessions in the United States. 

Most analysts expect the economy to rebound in the second half of this year before potentially regaining its pre-pandemic level in late 2021 at the earliest.

The Trump administration is predicting a relatively fast and robust economic rebound starting this summer. Most private economists are far less optimistic. 

They warn that if the pandemic intensifies and forces a second round of business closures, it would set the job market and the economy even further back. The damage could be dire.

One hopeful sign, in the meantime, comes from data compiled from Chase Bank credit and debit cards. It shows that consumers have gradually but consistently increased their spending since the government distributed the stimulus checks in mid-April.