Consumer Spending Up Even as More Save
Saturday, June 27, 2009
Consumer spending edged up in May for the first time since February, new data show, as the government stimulus plan boosted incomes. But in a sign that Americans are not immediately spending all their extra cash, the national savings rate rose to a 15-year high.
The $787 billion spending plan Congress passed in February shaved payroll taxes, provided aid to the unemployed and eligible retirees, and offered other assistance. Those provisions were responsible for most of the 1.4 percent increase in personal income last month, the Commerce Department reported yesterday.
Much of the stimulus money that recently rolled into bank accounts stayed there, pushing up the savings rate to 6.9 percent, from 5.6 percent in April.
While crafting the stimulus package, lawmakers debated how to give the flagging economy a lift. Sending more funds to states to extend unemployment benefits, for example, was considered a quick way to get money into circulation because the recipients were seen as likely to spend it right away. Funding for infrastructure projects is expected to take longer to kick in.
Alice Rivlin of the Brookings Institution said the stimulus is having an impact on consumer spending. It's just hard to measure. "It's a 'compared to what' question," she said. Consumers "are spending more than they would have if they hadn't had this income."
The stimulus appears to have partly offset a drop in wages and salaries paid by private employers, which continue to cut jobs, hours and bonus payments. Wage and salary disbursements sank by $12.4 billion in May, led by declines in goods-producing industries, data show.
Mark Zandi, an economist with Moody's Economy.com, said if past experience is any guide, it will be a few more months before consumers get around to spending the extra cash. In 2001 and 2008, when the government issued rebate checks to boost spending, it took six months for consumers to spend two-thirds of the money.
Some analysts, though, fear the stimulus package's impact on consumers is likely to be fleeting.
"As long as the employment situation remains bleak, I wouldn't expect consumer spending to change," said Richard Yamarone, an economist with Argus Research in New York.
One key to reviving consumer spending is the behavior of higher income households, which have cut back sharply to make up for losses in wealth caused by falling home and stock prices. Households that earned more than $100,000 annually accounted for 50 percent of consumer spending before the recession, compared with 45 percent now, Zandi said.
He says they have gotten "their savings rate where they want it" and could resume spending soon.
The data released yesterday suggested consumers have stepped up orders of big-ticket items. Purchases of durable goods such as appliances and autos increased last month 0.9 percent, compared with a decrease of 1.3 percent in April. Purchases of nondurable goods such as paper, clothing, beverages and gasoline increased by a smaller margin of 0.4 percent, after falling 0.4 percent in April. Purchases of services fell by less than 0.1 percent, after inching up 0.3 percent in April.
"It's possible we get into next year and the stimulus fades and the job market is still weak and the recovery doesn't take hold," Zandi said. "That doesn't mean it hasn't worked or hasn't helped."