U.S. incomes rise, but spending lull hurts economy
The U.S. Commerce Department said Tuesday, July 31, 2012, that U.S. personal spending in June fell $1.3 billion, down 0.1 percent from the previous month. / CBS News
(MoneyWatch) Although Americans' wages are up slightly, they're keeping a tight hold on their wallets, according to new federal data.
That's a mixed bag for the U.S. economy, providing the fuel for future consumer spending without doing much in the short-term to boost sluggish growth and reduce the nation's stubbornly high unemployment rate.
Personal income increased by $61.8 billion, or 0.5 percent from May to June, while income after social insurance and income taxes rose 0.3 percent, the U.S. Commerce Department reported today. That was the sharpest increase in income in the past three months.
Yet that increase in wages is not propelling a hike in spending. Personal expenditures fell $1.3 billion in June, or 0.1 percent, compared with the previous month. In a statement, Acting Commerce Secretary Rebecca Blank acknowledged that these economic concerns, such as the ongoing financial crisis in Europe, is damping consumer spending and restraining economic growth.
"Today's release shows that personal income grew by 3.5 percent over the past year, and that it has increased 30 out of the past 34 months," she said. "Most of these gains have come from increases in private-sector wages, which rose 4.2 percent. However, personal income growth continues to be weighed down by several factors, including flat growth in income from government employment. Further, our economy continues to face other headwinds, including the economic turmoil in Europe."
Consumer spending flat, while incomes rise 0.5 percent
GDP report: Numbers suggest a long economic slog lies ahead
How will the Fed react to the GDP report?
Consumer spending drives two-thirds of U.S. economic growth, so the economy tends to stall when personal consumption shrinks. With people pulling back on their purchases of groceries, electronics, and other goods, companies tend to cut down on production and put off hiring. Until economic demand rises significantly, unemployment is likely to remain relatively high.
Savings rates are also at their highest rate in a year, a sign that many Americans remain anxious about the economy and their future prospects. Yet putting more money away now could put Americans in a better position to spend if the economy improves later this year.
"The drop in consumer spending fits with this slowdown theme that we have experienced in the second quarter of this year," said Gary Schlossberg, senior economist with Wells Capital Management in San Francisco. "But there are a couple of silver linings. We saw a pretty good increase in income, and the savings rate moved back up. That gives consumers some dry powder to start spending again later in the year."
Households are now in the best financial shape they've been in years, with the lowest debt payments since 1993, Schlossberg said. There's also significant pent-up demand for a variety of goods and services that Americans have withheld from buying over the past five years as they tried to shed debt and rebuild their personal finances.
Of course, economics is always a balancing act between short- and long-term needs. "It's a double-edged sword," Schlossberg said. "You want to see incomes rising and savings rising so households are in a better position. On the other hand, if no one is spending, the economy is not going to recover."
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Sure, he's a great leader offering businesses temporary tax credits for hiring permanent jobs. What an idiot. What business in their right mind would go for something like that?
How any "green jobs" and "summer of recoveries" are we going to get before we default on our national dept? The true unemployment rate is at least 2 times the official government level. The only thing Obama created was more welfare, food stamp and permanent disability "work" force.
The only cuts Obama and the democrats support are to the US Military!
But we have been brain washed by CNN, MSNBC and other liberal media outlets Obama is strong on defense! What total bull crap. He makes Carter seem conservative, and that's an amazing accomplishment. The only reason he gave the go ahead to kill Osama Bin Laden was because he would have been crucified by the public during his 2 term run for the White House. I can't until November and we kick this bum out. He loves to cut military programs. There are over one million non-military US jobs supported by our military spending. Cut the military and you don't only weaken America, you also eliminate American jobs. Obama voluntary cut our nuclear ICBM force without getting anything in return from the Russians. Obama could have used that "card" now in Syria where the Russian support is paramount to Bashar Assad. Now that's a "leader" with foreign affairs experience! Pure idiot!
God bless the Republicans took back the House from that multi-millionaire ($25 Million wine vineyard) Nancy Pelosi and her ilk. They would have spent another trillion on a second "stimulus". When will they learn that you can't have government spending lead to strong permanent economic growth. I can't stand to see all these very rich democrats running around the country trying to pretend they want to help support the little guy. The truth is they are like drug pusher, who gives you a free taste, then gets you hooked on "their stuff" (i.e. government dependence) and then turns around and charges you for everything that you thought was for free. Rotten people!! I live in NYC and they spend an average of $21,000 per student yet the achievement level is well below the national average.
Where does all that money go? Union bureaucrats!
The only reason things improved under Clinton was because we had a Republican Congress!!!
Try asking that.
http://www.realitybase.org/journal/2009/3/10/the-american-dream-died-in-february-1973.html
Don't bother with the words within the article - the charts speak for themselves...
Maybe spring of 2013?