The Bureau of Economic Analysis announced that personal income rose 0.1 percent in June, while personal spending fell 0.2 percent. The decline in personal consumption was the first since June 2010. Adjusted for inflation, real spending was unchanged. Nonetheless, it is clear that Americans are continuing to tighten their belts in light of rising prices and economic uncertainty.
Manufacturing wages and salaries fell 2.1 percent, in annual terms, between May and June. This was slightly less than the 2.6 percent decline for the population as a whole.
In terms of spending, the largest declines were in durables. It was the fourth straight month of decreasing durable goods sales, a reflection of some of the weaknesses that were pervasive in the second quarter. Nondurable goods sales rose in nominal terms, but declined in real terms. On a year-over-year basis, durable goods spending continues to outpace nondurables 7.9 percent versus 1.9 percent.
In light of falling spending, the savings rate has risen to 5.4 percent, its highest point since September 2010. This increase reflects the anxieties that Americans are feeling about the economy, the labor market, and rising food and energy prices. Individuals continue to make spending decisions with these factors in mind.
On the whole, this measure is one more piece of evidence that the second quarter was extremely weak. Consumer confidence indicators have mirrored these results, and the worry here is that with consumption accounting for 70 percent of GDP, consumer skittishness could have real impacts on economic growth moving forward. With the debt deal nearly complete and many economists and manufacturers expecting a better second half of 2011, hopefully consumers will become more optimistic in the coming months.
Chad Moutray is chief economist, National Association of Manufacturers.