Consumer spending fails to keep pace with rising incomes

Spend it! Consumer spending isn't rising as fast as some would like.

Money that isn't part of the consumer spending drive for which the U.S. government is calling. (Photo: Flickr)

United States financial numbers for May 2010 are in, and according to Bloomberg Business, individual incomes outpaced consumer spending. This reportedly made it possible for households to boost their savings and support the economic recovery, although how slower spending boosts the nation’s economic recovery is in question. It could be viewed as another instance of reporting sleight of hand, similar to the way U.S. unemployment numbers were being reported the past few months.

Consumer spending – Where the money needs to go

Reports indicate that the table is gradually being set for increases in consumer spending. Payroll numbers are up, Americans are working longer and salaries are trending upward. Then again, Bloomberg reports in another story that the large number of jobless in America actually lowers salaries as there are so many applicants (supply and demand), so perhaps one hand doesn’t know what the other is doing in Michael Bloomberg’s domain. Whatever the case, the Federal Reserve has kept interest rates steady, so fewer folks will have to dive into the nearest cheap personal loan bunker to make ends meet.

Consumer spending won’t propel recovery

However, as RBS Securities economist Omar Sharif (not the bridge-playing actor) told Bloomberg, the level of consumer spending should be enough for sustained growth, but not enough to drive recovery efforts. Yet despite underwhelming growth in consumer spending, numbers still beat the median estimate of 61 economists surveyed by Bloomberg (0.1 percent gain). Wages were up 0.5 percent (1.3 percent since March), which was the largest increase over three months since December 2007 when the current recession is believed to have begun, and people looked to the easy loan more often than before. As a result, savings increased significantly: 4 percent from April into May ($454.3 billion). That’s the highest such increase in a single month since September 2009, reports Bloomberg.

It’s good news, for the most part

According to Sal Guatieri of BMO Capital Markets, American consumers have effectively rolled with the punches. “As long as jobs are coming back, people will continue to spend,” he told Bloomberg. Paying down debt such as from a fast personal loan and rebuilding savings are admirable financial goals that will continue to see improvement as positive economic factors continue to emerge.


Bloomberg Business

Bloomberg (lower salaries)

Consumer spending from the Fox Business point of view:

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