Poor wage growth is spoiling consumers' mood

Apparently, incomes aren't rising enough to make American feel better about the economy. Although the Commerce Department today reported incomes increased 0.3 percent in April, personal spending dropped. Additionally, two out of three recently released surveys found consumer confidence was down in May.

The Commerce Department report said overall growth in personal income -- which includes wages, investment returns and government transfers -- was 0.2 percentage points off the 0.5 percent rate in March. The decrease stems from Medicaid payments linked to Obamacare coming to an end.

Wage growth dropped to 0.2 percent, its lowest rate this year. The slowdown came even after the economy added 288,000 jobs in April, after generating more than 200,000 jobs in each of the two preceding months. This suggests that much of the hiring was in lower-paying jobs.

April also saw an across-the-board decrease in consumer outlays. Spending on services fell 0.1 percent after surging 0.8 percent in the prior month, mostly because of the decrease in gas and electricity consumption from this winter's unusually high levels. Spending on goods also fell 0.1 percent in April after a 1.4 percent increase in March.

While spending was down, prices were up. The Fed's price index for personal consumption expenditures rose 1.6 percent in April from a year earlier, and it was 1.4 percent higher excluding food and energy. That's an increase over March, when prices rose 1.1 percent from a year earlier.

Whether consumers viewed this as good news or bad seems to depend on who was asking.

While The Conference Board's index of consumer attitudes was up 1.3 points to 83 in May, The Thomson Reuters/University of Michigan's index dropped 2.2 points from April to 81.9 in May. And the Bloomberg Consumer Comfort Index fell to 33.3 in the period ended May 25 from 34.1 the prior week, its third decline in four weeks.

"Consumer sentiment fell back in May, mostly due to a weaker evaluation of current economic circumstances," Chris Christopher, director of consumer economics for IHS Global Insight, said in a statement. "Overall consumer sentiment and most components are slightly lower than they were twelve months ago. April was a relatively strong month on the consumer sentiment front -- due to a surge of respondents' perceptions of the future direction of the US economy. In May, consumer expectations ticked down but the current circumstances fell substantially."

The Bloomberg report found the confidence of those working either full- or part-time at six-month lows, underscoring the need for more employment opportunities and faster income growth. Rising expenses for food and gasoline are leaving households with less money for nonessential purchases.

Richard Curtin, survey director for the Thomson/Michigan report, said although the May level declined by 2.2 points from April, it was still slightly above the average of 81.7 for the first four months of the year.

"At present, the economy was anticipated to be strong enough in the year ahead to produce the best change in job prospects since 2004," Curtin said in a statement. "The main concern expressed by consumers involved dismal prospects for wage growth, which for nearly half of all households meant anticipated declines in inflation-adjusted incomes and living standards during the year ahead."

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    Constantine von Hoffman is a freelance writer and writing coach. His work has appeared in outlets such as Harvard Business Review, NPR, Sierra magazine, Brandweek, CIO, The Boston Herald, TheStreet.com, CSO, and Boston Magazine.

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