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Weak income growth holding back consumer spending- Sober Look

This is a syndicated repost published with the permission of Sober Look. To view original, click here. Opinions herein are not those of the Wall Street Examiner or Lee Adler. Reposting does not imply endorsement. The information presented is for educational or entertainment purposes and is not individual investment advice.

As discussed previously, economists maintain that in spite of the slowdown in manufacturing, the US consumer should provide the necessary lift to improve growth. According to the theory, with consumer confidence improving, the spending should follow. But that’s not exactly what happened. While consumer spending is up on the previous year, the growth in spending has moderated to the lowest level in three years.

Source: US Department of Commerce

The explanation is simple: incomes are just not growing very fast (chart below).

Source: US Department of Commerce

The spike in personal income at the end of last year is “tax planning” – shifting of income into 2012 in anticipation of higher taxes in 2013 (taking capital gains, receiving special dividend income, receiving some of 2013 pay in 2012, etc.). Outside of that, income growth has moderated. These days “happy”consumers are not necessarily big spenders – the relationship between sentiment and personal spending growth is not solid.

Reuters: – “Consumer spending is on a very modest track because income is not growing very much. Wage gain is very low even though job growth has picked up,” said Kevin Logan, chief U.S. economist at HSBC Securities in New York.

Many are still convinced that the consumer will “save the day” and push the US GDP growth higher this year. Perhaps. For now however we don’t see much evidence to support that view.

SoberLook.com

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