Consumer spending, incomes edged up last month

June 28, 2010 6:11:23 AM PDT
Consumer spending rose slightly in May, as Americans remain reluctant to open their wallets amid a slow economic recovery.

The Commerce Department said Monday that consumer spending rose 0.2 percent last month, an improvement from April's reading of no change.

But spending on goods declined. The increase came from increased spending on services - much of that likely the result of Americans using more electricity as the weather warmed up.

Incomes rose 0.4 percent, boosted by the temporary hiring of census workers.

The savings rate, or the percentage of income that wasn't spent, rose to 4 percent for a second straight increase.

Consumer spending accounts for about 70 percent of economic activity.

The economy has grown for three straight quarters as consumers, facing high unemployment and tight credit, are cautious. If spending remains sluggish, the economy may not grow fast enough to generate jobs and quickly bring down the unemployment rate, currently 9.7 percent.

Higher incomes could provide fuel for future spending. Wages and salaries rose 0.5 percent last month, the department said. About a quarter of the gain resulted from the hundreds of thousands of census jobs added in recent months, but also because the average work week has lengthened.

Employers added 431,000 jobs in May, but the vast majority were temporary census positions. Private employers added only 41,000 jobs. About 250,000 of census jobs are expected to end this month.

Consumers haven't been driving the current recovery. Instead, it has depended more on business spending and exports. In the four quarters following the steep 1981-82 downturn, consumer spending rose by an average of 6.5 percent per quarter. By contrast, even as the economy has grown for the past three quarters, consumer spending rose an average of only 2.5 percent per quarter.

The government said earlier this month that retail sales fell sharply in May, a sign consumers were cutting back.

Department store J.C. Penney Co. and many teen merchants including Abercrombie & Fitch Co. and American Eagle Outfitters Inc. reported declines in revenue at stores open at least a year.


Load Comments