Consumer Spending Up Because Prices Are Higher

by Dollars and Sense

Another "green shoot" that has brown splotches all over it: the latest report of higher consumer spending for June appears to be the result of higher prices for basic goods like food and energy, rather than any newfound desire of consumers to part with their dwindling stash of greenbacks.

From the NYTimes:

Higher Costs Spur Rise in U.S. Consumer Spending

Even though the broader economy may be scraping the bottom, American consumers are still struggling with falling wages and higher living expenses.

That was the picture painted Tuesday by the government's monthly report on personal incomes and consumer spending. While consumers spent more in June, they did so because prices of food and energy were rising, and not because they were ready to spend freely again.

Personal incomes sagged as employers continued to cut wages and reduce working hours. And the personal saving rate, which had been rising, dropped sharply from a month earlier as one-time transfer payments from the government stopped arriving in people's bank accounts.

"Consumers are not spending any more money," Steven Ricchiuto, chief economist at Mizuho Securities, said. "They're still consolidating." Personal income fell back 1.3 percent in June, just a month after a one-time $250 payment to Social Security recipients lifted it by the same amount. And in a sign of continuing troubles for American workers, private wages and salaries fell for a fourth month, slipping a seasonally adjusted $28.6 billion after a $11.3 billion drop a month earlier.

Private wages and salaries have fallen for each of the last 10 months as businesses trimmed costs by freezing pay, imposing salary cuts and reducing the work week. Personal income has dropped by a seasonally adjusted $372 billion since September.

"Wage and hour cuts are big right now," Adam York, an economist at Wells Fargo, said. "The economy remains fairly weak, and the labor market even weaker. We've lost 6 million jobs, and unemployment is rapidly heading toward 10 percent. There's just not a lot of wage pressure out there right now."

Labels: Inflation, military spending

 

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8/04/2009 12:15:00 PM