Consumer spending is critical because it accounts for 70% of economic activity. The Commerce Department says spending fell 0.1% in April, rose a tiny 0.1% in May, was flat in June, but rose 0.4% in July. Personal incomes were up 0.2% in July, less than expected but at least an improvement over June when incomes had not risen at all.
With spending rising, the personal savings rate slowed to 5.9% of after-tax income. That’s down from 6.2% in June, the highest in nearly a year. Even with the July decline, the savings rate is nearly three times higher than it was before the recession began in December 2007.
The July spending gain was the highest since a 0.5% rise in March. But the concern is that demand could taper off in the second half of this year if unemployment remains near double digits. If Americans don’t have jobs, they don’t have the income to support spending. the economy is growing too slowly to support sustained job growth and some fear it could fall back into a recession.
Economic growth slowed to 1.6% in the April-to-June quarter, the government reported Friday. That was revised down from the initial estimate of 2.4%. A string of weak economic reports in recent weeks has prompted economists to trim their growth forecasts for the rest of the year and next.
Saving and investing are extremely important. Are you spending to much?