U.S. Incomes Fall 1.3%, Biggest Drop in Four Years

U.S. Incomes Fall 1.3%, Biggest Drop in Four Years (Update2)
By Shobhana Chandra


Aug. 4 (Bloomberg) -- U.S. personal incomes tumbled 1.3 percent in June, more than forecast and the biggest drop in four years, signaling that consumer spending will take time to recover.

The decline partly reflected the unwinding of one-time transfer payments from the Obama administration’s stimulus plan, which boosted incomes 1.3 percent in May, figures from the Commerce Department showed today in Washington. Spending rose 0.4 percent in June as prices climbed. Adjusted for inflation, purchases fell 0.1 percent, the report showed.

The worst economic slump in seven decades eased last quarter as government spending programs started to take hold, underscoring forecasts the recession will end by the end of the year. The recovery is likely to be muted as job losses and falling home values cause Americans to boost savings and limit spending, which accounts for about 70 percent of the economy.

“We’ll see a weak economic recovery by past standards,” said James O’Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut. “For a sustained pickup in consumer spending, we need a clear-cut improvement in the labor market.”

Stock-index futures, which had fallen earlier in the day, remained lower and Treasuries extended gains. Contracts on the Standard & Poor’s 500 Stock Index dropped 0.5 percent to 995.50 at 9:09 a.m. in New York. Yields on benchmark 10-year notes dipped to 3.59 percent from 3.64 percent late yesterday. ..........(more)

The complete piece is at: http://www.bloomberg.com/apps/news?pid=20601087&sid=aT8rdIv7186Q

gone. done. They're not going to return any time soon, either. The banks and CC companies have seen to that, by forcing people to close accounts or accept outrageous rate increases.

I don't think this is a bad thing, mind you, but it does certainly herald the death knell of a consumer-driven economy.

So, as with so much of the rubbish I hear coming from govt agencies and wall st. whackos, I find the idea of a recovery based on "consumer spending" to be laughable, at best.

And honestly, don't you think they know it, deep down inside somewhere, that the economy of endless consumption is over, but they feel they've got to keep the charade going?

Rising consumer spending isn't unusual. Every economy experiences it and it has a multiplying effect. Spending leads to more jobs which means those workers have money and they spend it and that goes into someone else pocket... etc.

The major problem of the last 20 years. Lack of wage increases. Productivity gains are a staggering 67% adjusted for inflation in the last 2 decades. Wages should have rises some substantial percentage of that (maybe 35% to 50%).

They didn't. What did happen was a credit explosion. Credit card debt first and then refinances to tap home equity. Those are both gone.

To increase consumer spending wages need to rise. Pure and simple. Wages need to rise.

Even then it is no rose garden. Because consumers are so strapped with debt they likely will pay that down slowly. So a consumer paying down their debt at say 5% per year would need wage increase of 10% in order for spending to increase 5% (10% increase in wages = 5% going to debt + 5% in increased spending).

Without wage increases and without more access to credit you are right consumer spending won't increase. It actually will contract and kill any chance of an economic recovery.