U.S. spending, income growth remain weak
5/31/2008WASHINGTON - The first round of federal economic stimulus checks gave a boost to personal incomes in April but a huge question remains: Will people spend the checks quickly enough to keep the economy afloat?
The U.S. Commerce Department reported yesterday that consumer spending barely budged in April, rising a tiny 0.2 percent, and income growth was just as weak, increasing a similar 0.2 percent.
The growth in incomes, held back by four months of job losses, would have been just 0.1 percent had it not been for the first wave of economic stimulus payments that the government started sending out April 28.
The impact on incomes should be even larger in the May and June reports, reflecting the bulk of the payments. The Treasury Department said that so far 57.4 million payments have been made totaling $50 billion, nearly half of the $107 billion to be disbursed to 130 million households.
"It will be impressive if consumers can manage to hold on given all the headwinds they are facing," said Mark Zandi, chief economist at Moody's Economy.com. "Nothing is going right. Jobs are down, the stock market is wobbly, home prices are plunging, and gasoline prices are at record highs."
All the problems have pushed consumer confidence to recessionary levels. The Reuters/University of Michigan survey of consumer sentiment dropped for a fourth month in May, hitting a 28-year low of 59.8, down from a reading of 62.6 in April. The May level was the lowest since June, 1980, when Jimmy Carter was president and consumers were battered by a recession and soaring gas prices.
The 0.2 percent rise in personal incomes in April was the weakest gain since a 0.2 percent rise in January.
Private wages and salaries fell at an annual rate of $18.2 billion in April, the biggest setback in a year. Businesses have been cutting jobs for four straight months, and analysts forecast a fifth month of job declines when the government reports in a week on labor market conditions in May.