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US households may lack income to spend more
By Martin Crutsinger |
August 31, 2009, Monday
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Print Edition
Print Edition
HOUSEHOLD income in the United States is essentially stagnant, raising doubts about whether consumers already hurt by job losses can sustain an economic recovery.
The now-ended Cash for Clunkers program helped lift consumer spending last month and is expected to deliver a bigger boost this month. But any economic rebound likely would falter if shoppers lack the income to spend more in the long run.
Especially in the US, consumer spending is essential: It drives about 70 percent of economic activity - more than for most European nations and well above the rates in developing countries such as China.
US retailers already are paying the price for flat income growth and weak consumer spending. A survey of big retail chains showed that shoppers remained tightfisted last month. That raised fears not just about back-to-school sales but also about the make-or-break holiday shopping season.
"Consumers just don't have the financial firepower to go out and spend more," said Mark Zandi, chief economist at Moody's Economy.com. "Unless businesses curtail their job cuts, the recovery could very well peter out."
Americans' purchasing power has been battered by the 6.7 million jobs that have vanished since the recession began in December 2007. Companies also have cut costs by forcing workers to take unpaid days off or to work only part time.
And some consumers have pared their spending because their pay hasn't kept pace with their expenses or because they're using more money to save or reduce debt. Personal incomes were unchanged last month, the Commerce Department said last Friday. It was the eighth month out of the past 10 in which incomes have either fallen or failed to grow.
Consumer spending edged up 0.2 percent last month, matching economists' expectations. But the flat reading on incomes was weaker than the small rise economists had expected.
"It may take consumers fully a year to get back on their feet," said Sal Guatieri, an economist at BMO Capital Markets.
With incomes remaining unchanged last month even as spending rose, the personal savings rate dipped to 4.2 percent of after-tax income, from 4.5 percent in June.
The savings rate has been rising in recent months, after having sunk below 1 percent early last year. More people, facing layoffs, falling home equity and shrunken investment portfolios, are struggling to rebuild nest eggs.
Economists expect the savings rate to rise further in coming months, possibly topping 6 percent. If so, it would prolong the nation's sluggish spending and economic activity.
The now-ended Cash for Clunkers program helped lift consumer spending last month and is expected to deliver a bigger boost this month. But any economic rebound likely would falter if shoppers lack the income to spend more in the long run.
Especially in the US, consumer spending is essential: It drives about 70 percent of economic activity - more than for most European nations and well above the rates in developing countries such as China.
US retailers already are paying the price for flat income growth and weak consumer spending. A survey of big retail chains showed that shoppers remained tightfisted last month. That raised fears not just about back-to-school sales but also about the make-or-break holiday shopping season.
"Consumers just don't have the financial firepower to go out and spend more," said Mark Zandi, chief economist at Moody's Economy.com. "Unless businesses curtail their job cuts, the recovery could very well peter out."
Americans' purchasing power has been battered by the 6.7 million jobs that have vanished since the recession began in December 2007. Companies also have cut costs by forcing workers to take unpaid days off or to work only part time.
And some consumers have pared their spending because their pay hasn't kept pace with their expenses or because they're using more money to save or reduce debt. Personal incomes were unchanged last month, the Commerce Department said last Friday. It was the eighth month out of the past 10 in which incomes have either fallen or failed to grow.
Consumer spending edged up 0.2 percent last month, matching economists' expectations. But the flat reading on incomes was weaker than the small rise economists had expected.
"It may take consumers fully a year to get back on their feet," said Sal Guatieri, an economist at BMO Capital Markets.
With incomes remaining unchanged last month even as spending rose, the personal savings rate dipped to 4.2 percent of after-tax income, from 4.5 percent in June.
The savings rate has been rising in recent months, after having sunk below 1 percent early last year. More people, facing layoffs, falling home equity and shrunken investment portfolios, are struggling to rebuild nest eggs.
Economists expect the savings rate to rise further in coming months, possibly topping 6 percent. If so, it would prolong the nation's sluggish spending and economic activity.
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