Consumer spending was flat last month, even though income was up in April. A sign of things to come? A sampling of reaction from the punditocracy…
“The good news is that households are making more money; the bad news is that they are not spending it,” said Joel Naroff, president of Naroff Economic Advisers.
“Income growth outpaces spending in April”
Over the last several decades, personal spending has been bolstered mostly by borrowing, [according to Guy LeBas, the chief fixed-income strategist for Janney Montgomery ScottGuy LeBas]. “If we take out that borrowing, the trajectory has to be much lower,” he said. “I think what we are looking at here is a cultural trend that is going to play out over years.”
“U.S. Consumer Spending Was Stagnant in April”
The New York Times
Ian Shepherdson, chief economist for High Frequency Economics, said that retail sales account for only two-fifths of total spending. The data released Friday showed that purchases of nondurable goods such as food and fuel dipped 0.1 percent, adjusted for inflation. Spending on services rose 0.1 percent. “These numbers get the second quarter off to a soft start,” Shepherdson said. “The lesson here is that relatively strong retail sales numbers do not guarantee robust consumption.” Consumer spending is a key component of the economic recovery, but the high unemployment rate has kept demand in check. Store traffic and sales this month have tapered off, according to the International Council of Shopping Centers, a trade group. The ICSC this week lowered its forecast for May sales from a gain of 3.5 percent compared with the previous year to between 2 and 2.5 percent. However, some retailers say that the late Memorial Day weekend will push purchases into June.
“Personal incomes up, but consumer spending flat in April”
The Washington Post
Consumption remained flat in April, the Commerce Department said Friday, despite an increase in incomes fueled by the job market’s improvement last month. It was the first time in six months that consumer spending didn’t increase, and follows gains of 0.5% and 0.6% in February and March, respectively. “I just think we saw some really outsized gains in February and March,” said Michelle Girard, an RBS Securities Inc. analyst, adding that the outlook for consumer spending remains strong thanks to the labor-market rebound.
“Consumers Save More, Hold Spending Steady”
The Wall Street Journal
However, even the higher savings rate will likely serve as a point of contention between the bulls and bears. Most economists generally view the nation’s higher savings rate as a constructive development after a decade of over-consumption, in many cases paid for with credit. But if the savings rate rises too high, consumer spending will decline, lowering GDP growth. What would resolve the bull/bear tug-of-war regarding tepid consumer sentiment? Sustained job growth. The economy has added an average of 260,000 jobs in March and April, and if it adds more than 200,000 jobs in May, that would signal to Americans that the U.S. economy is creating jobs in a sustained way, something that historically has triggered an uptrend in consumer sentiment.
“Consumers Holding Steady in May”
Richard DeKaser, president of Woodley Park Research, is not too surprised by the drop in consumer spending in April. “Spending had been outstripping income for some months…to a degree that was simply unsustainable,” explained DeKaser. From October 2009 to March 2010, personal spending grew at least 0.2 percent and as high as 0.7 percent. In that same period, it outpaced income 5 out of 6 months and by as much as 0.5 percentage points.
“‘Unsustainable’ growth in consumer spending cools in April”
International Business Times