VOL. 126 | NO. 150 | Wednesday, August 3, 2011
Americans Cut Spending in June
WASHINGTON (AP) – Americans cut their spending in June for the first time in nearly two years after seeing their incomes grow by the smallest amount in nine months. The latest data offered a troubling sign for an economy that is adding few jobs and barely growing.
Consumer spending dropped 0.2 percent in June, the Commerce Department said Tuesday, Aug. 2. It was the first decline since September 2009.
Some of the decline was the result of food and energy prices moderating after sharp increases earlier this year. When excluding spending on those items, consumer spending was flat.
Still, consumers also cut back on big-ticket items, such as cars and appliances, which help drive growth.
Incomes rose 0.1 percent, the smallest gain since September. Many people are also pocketing more of their paychecks. The personal savings rate rose to 5.4 percent of after-tax incomes, the highest level since August 2010.
The data confirmed last week’s report that showed the economy expanded at an annual rate of just 1.3 percent in the spring after only 0.4 percent growth in the first three months of the year. It also highlighted that consumer spending softened at the end of the April-June quarter, which could mean the sluggish economy is worsening.
“The recent run of weak economic news has made us more concerned that any rebound will be more modest than previously looked likely,” said Paul Dales, senior U.S. economist at Capital Economics.
High gas prices and unemployment have squeezed household budgets this spring. Many Americans are cutting back on purchases of cars, furniture, appliances and electronics. Consumer spending is closely watched because it accounts for 70 percent of economic activity.
Employers have responded by reducing hiring. The economy added just 18,000 net jobs in June, the fewest in nine months. The unemployment rate rose to 9.2 percent, the highest level this year.
The government issues its July employment report on Friday.
Businesses are creating fewer jobs despite reporting strong earnings and sitting on large cash reserves.
The biggest drop in spending occurred in such items as food and gasoline. Spending on such non-durable goods fell 5.5 percent, reflecting price declines after spikes early this year. An inflation gauge tied to consumer spending dropped 0.2 percent in June, the biggest one-month decline since September 2009. Outside of food and energy, prices were up 0.1 percent.
Still, spending on durable goods, such as autos, also fell in June 1.1 percent. One reason for the decline may be the shortage of popular car models in showrooms. Supply chain disruptions caused by the March earthquake in Japan have limited production of auto and electronic parts.
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