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2.7%  Q1 GDP    4.57%  avg. 30-year mortgage     9.5%  Unemployment

March consumer spending outpaces wage hikes

NEW YORK - AUGUST 04:  People shop at the Manh...

Image by Getty Images via Daylife

Consumer spending in March rose twice as much as personal income, the government reported moments ago. That's good for the economy but potentially bad for individual consumers, who may be outspending their wages.

Personal income in March rose 0.3 percent, but consumer spending rose by 0.6 percent, the Commerce Department said.

The numbers are in line with forecasters' expectations.

Consumer spending makes up about 70 percent of the U.S. economy. Economists are watching consumer spending closely because so far, this has largely been a jobless recovery. The official U.S. unemployment rate, currently at 9.7 percent, has been stubbornly refusing to drop significantly from its recent high of more than 10 percent. Forecasters expect unemployment to remain near 10 percent through at least the remainder of this year.

That means that if the recovery is to continue, it will have to be largely based on consumption, not new employment.

If consumer spending continues to increase but personal income does not, that could suggest that people are putting their new purchases on their credit cards, which is troubling. Indeed, the personal saving rate dropped from 3 percent to 2.7 percent, hitting its lowest rate since September 2008.

Economists worry that the promising gains in consumer spending cannot continue while unemployment remains high.

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By Frank Ahrens  |  May 3, 2010; 8:44 AM ET
Categories:  The Ticker  | Tags: Consumer Information, Consumer spending, Consumption, Economy of the United States, Home, Twitter, Unemployment, United States  
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Next: March construction spending surges, business purchases rise

Comments

Gulf of Tonkin lessons. The administration's portrayal was at best misleading and at worst outright lies. You can worry or you can have courage. Credit is increasing. I could use more cash. I can always use more cash. Greece is going cashless. They maxed out the Greek Express card and want the Germans to settle up the bill. Settle down. It's a leaky world.

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Posted by: itkonlyyou38 | May 3, 2010 10:17 AM | Report abuse

Yeah, I saw this last night at Walmart. Place was jammed. People were buying. Mismanaged and understaffed, probably because the management had not anticipated the crowd, the lines were long and slow.

Your article seems to blame consumers for spending beyond increases in wage levels.

But my friend, after decades of declining wages relative to prices, who's to blame.

Supposedly the casino on Wall Street is raking in big bucks, skimming off the honest efforts of people who are actually working.

But wage increases never happen.

Although the banks/credit card companies most people deal with received part of the 750 billion dollar illegal gift of public funds, humorously named TARP, and continue to receive 0% money from the Fed, they collect form consumers 20-30% interest on consumer credit even in cases where obligations are timely met. I know this both from survey research and personal experience.

Your article seems to blame working people for going to a discount store and buying what they need to live.

I would blame someone else.

Posted by: tauot | May 3, 2010 10:38 AM | Report abuse

If the wage is not going up and people are spending more, that would indicate people saving less, which may or may not be a good thing in the long run.

I hope the events in the last couple of years have helped most people pick up some habits of spending smart and not just spending.

As smart - I hope anyway - consumers, we make do and stretch as much as possible for each dollar spent. Lately my family and I have been doing more research before buying anything, and have also done more online shopping and looked harder for better deals.

One of the online sites we have found to be useful is:
http://www.uberi.com

Maybe someone will find it useful too. While you are there, I would suggest checking out the "Amazon Filler Item" among other things there when you get a chance. It's quite amusing.

Posted by: john3k | May 3, 2010 12:22 PM | Report abuse

It appears the link between consumption and employment has finally been broken. The bad news it looks like I was born about forty years too soon.

Posted by: slim2 | May 3, 2010 1:21 PM | Report abuse

So consumers are spending more but it's coming out of savings. Where will the jobs come from?
You can hear some answers at www.JobTalkAmerica.com

Posted by: kcsam215 | May 3, 2010 2:30 PM | Report abuse

Money McBags with a rant today on consumers spending more than their incomes are growing.

http://whengeniusprevailed.blogspot.com/2010/05/5310-midafternoon-report-consumer.html

Bottom's Up,

Money McBags

Posted by: moneymcbags | May 3, 2010 3:04 PM | Report abuse

What wage hikes? The CPI has the average wages **falling** last month by 2 cents an hour. Likewise, in spite of the rubbish being spewed by Team Obama, unemployment rose 0.1%. The unmassaged U6 model has it is 20% -- the massaged Bureau of Labor number, which now doesn't count self employed businesses going under, small businesses with few than 20 employees laying people off, and even U.S. hi-tech workers displaced by H1-B guest workers, has it at 16.9%. Mass layoffs last month totaled 150,864 with a paltry 147,000 jobs added (including part time census jobs, people working as few as 8 hours, and, agin, all of those new H1-B and L-1 workers). Net jobs lost, just last month, were 30,000. Why doesn't the Post economic editors do even the most cursory examination of nonsense distributed by the White House?

Posted by: mibrooks27 | May 3, 2010 3:29 PM | Report abuse

The fed has done an excellent job in keeping inflation "so" low and the hence manage to keep the rates so low for an "extended" period of time ... it's good that people are not saving - in fact people should never be saving - by spending the money today, the return is far greater than keeping it in the bank and seeing it shrink.

Posted by: free_np | May 3, 2010 4:16 PM | Report abuse

Well common sense tells me that this is unsustainable.......again.

We all know what happens when people rack up debt that they can't pay back. THEY DEFAULT ON IT.

So long as we continue to have blatant wage suppression and ever rising productivity we're going to see a permanent underclass/working poor. This group will grow. This group will get increasingly agitated. This group will bring the masters to their knees.

Posted by: theobserver4 | May 3, 2010 4:34 PM | Report abuse

What are "they" buying?

Clothing wears out and most people prefer not to walk around naked in public.

You have to eat, or otherwise you can't poop.

And you need TP to wipe.

There goes all your money.

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Posted by: NilsaJoe | May 4, 2010 3:44 AM | Report abuse

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