Consumers Increase Saving and Spending in May

During May 2009, US consumers saved significantly more money than they did in April 2009, but also earned and spent a little more, according to the most recent Personal Income and Outlays Report from the Bureau of Economic Analysis (BEA), which indicates that the financial picture for American consumers may be showing signs of improvement.

According to BEA estimates (via Retailer Daily), US consumers’ personal consumption expenditures, which essentially reflect consumer spending, increased $25.1 billion, or 0.3%, in May. The BEA also estimates that during the month, personal income increased $167.1 billion, or 1.4%, and disposable personal income increased $178.1 billion, or 1.6%.

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In contrast, during April 2009, personal consumption expenditures increased $1 billion, or less than 0.1%, personal income increased $78.3 billion, or 0.7%, and disposable personal income increased $140 billion, or 1.3%.

As in April, the BEA attributed much of the change in disposable personal income, which is personal income less current personal taxes, to changes in the American Recovery and Reinvestment Act (pdf) of 2009, which reduced personal current taxes and increased government social benefit payments. Excluding these special factors, disposable personal income increased $20.6 billion, or 0.2%, in May, following an increase of $101.3 billion, or 0.9%, in April.

Consumers sharply increased their personal saving during the month. In May, consumers saved $768.8 billion, a 26.3% increase from the $608.5 billion saved in April. Personal saving as a percentage of disposable income was 6.9% in May, compared with 5.6% in April. Similar jumps in total personal saving figures and percentages occurred between March and April 2009.

Retailer Daily also reports that the retail industry will not likely be encouraged by consumers who continue to save, rather than spend, but slow, steady rises in spending and disposable personal income are positive signs for the industry. Another positive sign for retailers is the May 2009 performance of the Consumer Confidence Index, which increased from 40.8 in April to 54.9 in May. Much of the overall increase came from significant improvements in the Consumer Expectations Index, which measures consumer expectations for economic performance in the next six months. However, retailers also need to be cognizant of the continuing rise in consumer unemployment, which hit 9.4% in May.

Similar research from Harris Interactive found that consumers are saving more and spending and borrowing less, though they are not rebalancing their investment portfolios.

Comments

[Dave Wrixon:]

If fewer workers have more money, then that seems to indicate wage inflation. There is certainly nothing in the economic statistics to suggest they have been more creative, so the growth has to be inflationary.

Jun 30 07:02 AM

[steve graves:]

POINT # 1: When both savings and unemployment rates are increasing consumer spending, minus perhaps those one-time stimulus hand-outs, must therefore decrease.

POINT # 2: When consumer spending drives 70 percent of your GDP, your GDP cannot possibly recover so long as consumer spending decreases or remains flat.

POINT # 3: The only path to recovery is for consumers to borrow themselves more deeply into debt, which is precisely what created this debacle in the first place.

CONCLUSION: When the cure becomes the disease the time has come to arrange hospice. U.S. economy, R.I.P.

Jun 30 10:35 AM

[H. T. Love:]

Good points, except for the last one. When the disease becomes the cure, the case in the current scenario, time to get a new "doctor".

HardToLove


On Jun 30 10:35 AM steve graves wrote:

> POINT # 1: When both savings and unemployment rates are increasing
> consumer spending, minus perhaps those one-time stimulus hand-outs,
> must therefore decrease.
>
> POINT # 2: When consumer spending drives 70 percent of your GDP,
> your GDP cannot possibly recover so long as consumer spending decreases
> or remains flat.
>
> POINT # 3: The only path to recovery is for consumers to borrow
> themselves more deeply into debt, which is precisely what created
> this debacle in the first place.
>
> CONCLUSION: When the cure becomes the disease the time has come
> to arrange hospice. U.S. economy, R.I.P.

Jun 30 12:24 PM

[Ted Hurlbut:]

the june numbers are likely to show weaker sales and a slight drop in the savings rate. one way or another, consumers are more focused on repairing their savings rate before they start spending again.
Ted Hurlbut
www.hurlbutassociates.com

Jun 30 04:18 PM