Americans cut spending: First time in 20 months

Posted by RJ & Makay on August 3, 2011

commerce-department, consumer-spending, economic-recovery, gas-prices, joel-naroff, john-herrmann, paul-dales, personal-savings-rate, productivity, wage-growth


Americans cut spending: First time in 20 months

U.S. consumer spending in June dropped unexpectedly as Americans saw their incomes grow by the smallest amount in nine months, according to the Commerce Department.  It was the first time in 20 months that Americans cut their spending and is a troubling sign for economic growth.  Consumer spending dropped 0.2% in June, which followed a gain of 0.1% the month before.  Incomes rose 0.1%, the smallest gain since September 2010.

“Consumers ended the quarter on a pretty poor note,” said John Herrmann, senior fixed income specialist at State Street Global Markets in Boston.  “The third quarter is looking very soft too. Consumers are facing lackluster wage growth in this phase of still-high gas prices.”

The personal savings rate increased to 5.4% of after-tax income as many Americans seem to be saving for “a rainy day.”  It was the biggest rise since August 2010.

High gas prices and high unemployment have put pressure on household budgets as many Americans have cut back on purchases of cars, furniture, appliances and electronics.

“What worries me is that businesses are deriving their strong earnings growth through productivity gains, limited wage increases and foreign activities,” said Joel Naroff of Naroff Economic Advisors.  “While that may be good for an individual firm, when most companies do that, income gains become so limited that spending and ultimately growth fades.”

Manufacturing showed its weakest growth in nearly two years, according to the Institute for Supply Management.  June core inflation, excluding food and energy, rose 0.1% from the prior month.

Some economists have cut their expectations for the second half of the year.  Paul Dales, senior U.S. economist at Capital Economics has cut his second-half growth outlook to 2%, down from a previous forecast of 2.5%.

“The recent run of weak economic news has made us more concerned that any rebound will be more modest than previously looked likely,” Dales said.

RJ & Makay

 

Sources:

 

Americans cut spending for first time in 20 months (http://www.latimes.com/business/la-fi-economy-20110802,0,1299011.story?track=rss&dlvrit=52116).   Los Angeles Times, August 2, 2011

Consumer spending in U.S. fell in June (http://www.bloomberg.com/news/2011-08-02/consumer-spending-in-u-s-unexpectedly-falls-for-first-time-in-two-years.html). Bloomberg, August 2, 2011

 

 

 



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