MARCH 1, 2012
By Natalia V. Osipova
Americans saw their income rise again in January, but spending remained flat for the third month in a row.
The report on personal income and outlays, issued by the Bureau of Labor Statistics today, made for a grim reading.
Personal income rose slower than expected, by 0.3 percent, to $13,238 billion in total. Real disposable income dropped by 0.1 percent.
Spending, measured by the Personal Consumption Expenditures index, gained 0.2 percent, or $23.2 billion. However, in real terms, spending stagnated.
More jobs created in January, didn’t translate into more spending. Unemployment contracted from 8.5 to 8.3 percent, the lowest since February 2009. This rate is still high even with the “new normal” joblessness rate of 6.7 percent, suggested by the Federal Reserve Bank of San Francisco last year.
“Despite the fact that there was a big increase in the number of jobs, total wages and salaries didn’t go up as much as, at least I expected,” said Joel L. Naroff, the chief economist and the president for Naroff Economic Advisors. Inflation picked up 2.4 percent over the past year, and people’s spendable income shrank.
“Purchasing power is actually falling, because wages are just not picking up with even the fairly moderate increase in prices,” said Mr. Naroff.
Americans’ consumer confidence is still weak. Since November 2011, workers income in real terms has been grow, but they have been reluctant to spend more.
Purchases of services that make up about 76 percent of the United States GDP slipped 0.1 percent. This is another evidence for low consumer sentiment. Shoppers cut down expenses on something they could probably live without.
One explanation for weak services presents a paradox about surging energy prices.
Warm winter allowed Americans to save on their utility bills. But consumers chose not to spend this spare money.
“That was good news for consumers, in that they were able to get extra money. For retailers, they didn’t pull out of it, ” explained Mr. Naroff.
Besides that, gas prices remain a big worry. Economists say, this could soon weaken consumer spending even more.
Mr. Naroff said consumer confidence could fade in March if gas prices continue to grow.
Housing problems, credit restrictions and instable job market are some of the factors that currently hamper consumer spending growth and general recovery.
“The U.S. economy is no way super-healthy right now,” said Jennifer Lee, Senior Economist at BMO Capital Market.