The recession continues to take its toll on the American consumer, new government data released today advises. Disposable personal income dropped a hefty 1.3% in June, reports the Bureau of Economic Analysis. On the other hand, consumer spending rose 0.4% in June. Alas, the pop in Joe Sixpack’s willingness to spend is less than it appears.
But first, a closer look at the fall in personal income. One reason for the retreat was the fading of the one-time government stimulus checks (American Recovery and Reinvestment Act of 2009) sent in May. In fact, the loss wasn’t nearly as steep once you ignore the government stimulus factor for the last two months. Excluding the checks from Uncle Sam reveals a far more modest 0.1% drop in personal income for June vs. the month before.
More troubling, however, is the ongoing decline in wages and salaries, which fell again in June vs. May by 0.4%. Indeed, it’s been falling nonstop since last November. Therein is the frontline attack on the economic outlook. Ok, we all know that the labor market is critical for economic growth. Why, then, is consumer spending up 0.4% for June? One reason is that spending on gasoline rose for the month, thanks to a generally ascending price for fuel. Indeed, consumer spending on energy goods and services jumped a dramatic 8.3% in June, vs. just 0.2% for May, BEA advises in today’s update.