Consumers Increase Spending Despite Lower Incomes

August 5, 2009

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US consumers saw their personal income and disposable personal income (DPI) drop in June 2009, but still increased their spending, according to the most recent “Personal Income and Outlays Report” from the Bureau of Economic Analysis (BEA), Retailer Daily reports.

According to BEA estimates, American consumers’ personal income decreased $159.8 billion, or 1.3%, in June. DPI, which is personal income less current personal taxes, decreased $143.8 billion, also a 1.3% drop. Meanwhile, consumers’ personal consumption expenditures (PCE), which essentially reflect consumer spending, increased $41.4 billion, or 0.4%.


By comparison, May was a better month for consumers in terms of income. According to revised BEA estimates, personal income increased $155.1 billion, or 1.3%, and DPI increased $168.7 billion, or 1.6%. May was not quite as healthy for retailers, as PCE increased $9 billion, or only 0.1%.

For the past several months, the BEA has been attributing both positive and negative changes in personal income levels to different provisions of the American Recovery and Reinvestment Act (pdf) of 2009, which reduced personal current taxes and increased government social benefit payments.

In June, the BEA said the Act boosted personal current transfer receipts, which are benefits received without performing current services, much less than in May, resulting in lower personal income. Excluding this special factor, personal income decreased $7.8 billion, or 0.1%, in June, following a decrease of $2.5 billion, or less than 0.1%, in May.

As a result of increased spending in the face of decreased income, consumers saved significantly less in June than in May. Personal saving was $504.8 billion in June, a 25.8% drop from $681 billion in May. As a percentage of DPI, personal saving was 4.6% in June, compared to 6.2% in May.

While increased spending levels are an encouraging sign for retailers, decreased income and DPI represent a possible threat and suggest June’s spending habits may be short-lived. Other recent signals from the US economy have also been mixed.

On a more positive note, US retail sales rose 0.6% in June 2009. The US trade deficit shrank 9.7% in May 2009. Consumer credit decreased at a seasonally adjusted annual rate of 1.5% in May 2009, while borrowing figures for April 2009 show that consumers decreased borrowing by 16%.

On the more negative side, the Consumer Confidence Index dropped from 49.3 in June 2009 to 46.6 in July 2009. In addition, US unemployment rate rose from 9.4% in May to 9.5% in June. In other negative economic signs, the GDP (Gross Domestic Product) shrank 1.2% in Q2 2009, and the RPI (Restaurant Performance Index) slid from 98.3 in May 2009 to 97.8 in May 2009, registering its second straight decline after five consecutive months of growth.

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