Consumer Spending Falls

As GM goes, so goes the nation.

With fewer GM cars to buy, American consumers reduced their spending by 0.2 percent in July to a $5.798 trillion annual rate, the first decline in more than two years, the Commerce Department reported Friday.

Personal incomes rose 0.5 percent to $7.137 trillion, the department said. Disposable personal income also rose 0.5 percent to $6.035 trillion. The personal savings rate rose to 0.8 percent to $45.5 billion. The figures are not adjusted for inflation.

Both incomes and spending were held down by the now-concluded strike against General Motors, the government said

Consumer spending has been the main engine driving the economic boom of the past eight years. As the manufacturing sector slowed in the first half of the year, consumer spending kept the economy humming. The growth in spending had outpaced growth in incomes for three straight months, driving the personal savings rate to near zero.

The decline in spending in July was entirely due to a drop in purchases of autos, the department said. Spending on durable goods fell 5.2 percent to $698 billion, with the decline more than accounted for by autos. Spending on nondurable goods rose 0.4 percent to $1.545 trillion and spending on services increased 0.5 percent to $2.889 trillion.

Economists have been expecting personal spending to taper off, largely because of a negative wealth effect from the stock markets' woes. With lower stock prices, consumers not only lose wealth, they lose confidence in the future. They also need to save more from current income to meet their savings goals. Recent consumer confidence surveys have shown some deterioration in future expectations about the economy, although overall confidence remains very high.

In July, wages and salaries in the private sector rose $22.9 billion despite a drop of $3.8 billion in manufacturing payrolls. The department said wages dropped $3.5 billion in the auto industry as a direct result of the strike.

Most other income sources rose, except income of farm proprietors, who felt a 1.4 percent drop. Other proprietor income rose 5.9 percent.

Dividend income rose just 0.1 percent, a continuation of a flat trend.

Interest income rose 1.2 percent, transfer income rose 2.7 percent and rental income rose 1.8 percent.

Written by Rex Nutting