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US consumer spending rose in June

SLUGGISH: After adjusting for inflation, however, spending fell 0.1 percent. Personal income also declined 1.3 percent as the effects of the government stimulus wore off

REUTERS , WASHINGTON

US consumers spent more in June, but a big drop in incomes pointed to a slow recovery from the worst recession in decades.

Spending rose 0.4 percent in June after a 0.1 percent gain in May, the US Commerce Department said on Tuesday, partly because of higher gasoline prices. But after adjusting for inflation, spending — which accounts for more than two-thirds of US economic activity — fell 0.1 percent after being flat in May.

Savings slipped from a recent rising trend as strapped consumers had to dig deeper to spend.

“This is indicative of the state of the economy. As we turn the corner on this recession, we find the economy stabilizing but definitely not resurging. We’re going to see fairly soft economic numbers for some time,” said Robert Dye, a senior economist at PNC Financial Services Group in Pittsburgh.

GDP REVISION

While the recession’s grip on the economy appears to be slackening, continuing job losses are sapping consumers’ willingness to spend and heightening chances that recovery from the recession, now in its 20th month, will be tepid.

Analysts said the sluggish real consumer spending suggested that second-quarter GDP could be revised to show a bigger drop than the 1 percent fall reported last week.

The Commerce Department said personal income declined 1.3 percent in June as the effects of one-time government stimulus checks, part of the government’s US$787 billion package to jump-start the economy, wore off.

The drop in personal income was the biggest decrease for any month since January 2005. Private wages and salary disbursements in June decreased US$28.6 billion after dropping US$11.3 billion in May, the department said.

Real disposable income — money left over after taxes and adjustment for price rises — tumbled 1.8 percent in June, the largest decline in a year, and savings fell, the department said.

The amount of after-tax income Americans stashed away decreased to an annual rate of US$505 billion in June from US$681 billion in May.

SAVINGS SLIP

The savings rate — the percentage of disposable income saved — slipped to 4.6 percent after jumping to 6.2 percent in May.

Some analysts said consumers were most likely done saving for now, adding that government programs such as “cash-for-clunkers,” aimed at encouraging drivers to trade in old vehicles with higher fuel consumption for new, less thirsty ones, could see households save less in the months ahead.

They said this could boost consumer spending in the third quarter and contribute to growth in overall output. Spending fell at a 1.2 percent rate in the second quarter after rising a modest 0.6 percent in the January-to-March period.

“Fear is subsiding somewhat as this discussion of the end of the recession gets pretty prevalent. Consumers are starting to spend some of the cash they have been hoarding. You are seeing that with automobiles,” said Tommy Williams, president of Williams Financial Advisors in Shreveport, Louisiana.

However, sharp downward adjustments to the previous months’ income figures — wage and salary income and dividends — also meant that the savings rate rose less than previously thought, some analysts said.

“[This is] a troubling signal, because it may suggest that there is further adjustment to come. Reduced wealth, high debt, tight credit and a weakening labor market are all weighing on consumers,” said Nigel Gault, chief US economist at IHS Global Insight in Lexington, Massachusetts.

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