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Consumer Spending, Personal Income Sink

Published 09/02/08 Dustin Ensinger - Print Article
E-mail - editor@economyincisis.org

Personal income fell markedly in the month of July after two consecutive months of an increases, the Commerce Department reported Friday. The 0.7 percent decline accounts for the largest drop the United States has seen since August 2005, when personal income dropped 2.3 percent.

This comes on the heels of information indicating that personal income increased 0.1 percent in June and 1.8 percent in May. Those increases seem to be due to the government stimulus package. The package was sent out in the form of tax rebates as part of the Economic Stimulus Act of 2008. This most recent decrease in personal spending is a clear sign that the effects of that legislation are waning. The temporary economic boost cost taxpayers $152 billion and led to more deficit spending financed by foreign nations.

Disposable income, defined as what consumers have after paying taxes, declined 1.1 percent in July. Rebate checks increased disposable income 1.9 percent in June and 5.7 percent in May.

Consumer spending has tapered off as well. After increasing by 0.6 percent in June, spending rose just 0.2 percent in July. Personal spending, when adjusted for inflation, fell 0.4 percent in July.

"Apparently, a large portion of the extra money provided by the rebate checks was eaten up by higher prices at the grocery store or siphoned away by higher prices at the gas pump," wrote Mark Vitner, senior economist at Wachovia, in a note Friday.

Source CNNMoney.com:

Personal income fell in July by the biggest drop in 3 years after surging the prior two months because of $90 billion in economic stimulus payments.

The Commerce Department said Friday that individual income decreased by 0.7% in July after a 0.1% jump in June and a 1.8% increase in May. Economists polled by Briefing.com were expecting income to fall by 0.2% in July.

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