Keeping the change

Tuesday, June 1, 2010

Another economic report with mixed news came out last week. The report on personal income and spending showed that personal incomes rose slightly and that consumers are holding on to their money.

Personal incomes rose 0.4 percent in April, and consumer spending remained flat from March. The Commerce Department report showed that the flat spending level was the worse in seven months.

Some economists had predicted a 0.3 percent increase in spending.

The savings rate rose 3.6 percent in April. The rate had fallen to 3.1 percent in March, the lowest reading since October 2008.

This report is another indicator of the stop and go nature of the economy. It seems that things are getting better, then things slow down again.

Sales in March rose by 2.1 percent, fueled by an early Easter and attractive incentives offered by automakers. So when April sales rose 0.4 percent, some economists were puzzled.

Consumers are understandably cautious with their money. We have been chastised in the past for spending too much and saving too little. Now that consumers are spending less and saving more, they are criticized for not spending.

As many know, consumer spending accounts for the lion's share of the economy, as much as 70 percent of all activity. So many people are concerned about your spending habits (or the lack thereof).

But even with flat April sales, economists expect consumer spending will still grow at 3 percent, down from the first three months rate of 3.5 percent.

Inflation, which has been a concern, has remained in check, aided by falling energy prices. An inflation gauge tied to consumer spending showed no increase in April and a rise of just 2 percent over the past 12 months. Excluding food and energy, prices have been even more behaved, up just 1.2 percent over the past 12 months.

Concerns about unemployment will continue to hold back the economy. Consumers simply don't have enough money to spend our way back to prosperity.

So don't blame us for keeping the change.