Is the sluggish economy finally inspiring consumers to implement a self-imposed round of personal austerity? It looks that way after reading today’s update of personal spending and income for May. Disposable personal income rose modestly by 0.2% last month, matching April’s gain and posting the eighth straight monthly increase. But personal consumption expenditures were virtually unchanged in May, rising by the smallest of margins and thereby delivering the weakest month for consumer spending since the slight decline in June 2010.

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Debt Hamstrings Recovery
The Wall Street Journal | June 27
Around the globe, the inability of governments and households to reduce their debt continues to cast a shadow over Western economies and the financial health of individuals. Today, U.S. consumers have more mortgage and credit-card debt than they did five years ago, and the U.S. budget deficit is worsening. At the same time, European governments are having to throw billions more euros at Greece to keep it afloat. The fundamental problem is that reversing the trend of piling on the debt requires some combination of cutting spending, growing income or the economy, and inflation. But wage growth is stagnant and home prices, which underpin much of the debt problem, are still falling. Meanwhile, in a vicious circle, businesses aren’t hiring or investing because they know consumers are tapped out. Banks, for their part, are hoarding cash, being stingy with new loans.

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