Skip to comments.Incomes Drop Most in 20 years
Posted on 03/01/2013 6:12:48 AM PST by safetysign
Consumer spending in the U.S. rose in January even as incomes dropped by the most in 20 years, showing households were weathering the payroll-tax increase by socking away less money in the bank.
Household purchases, which account for about 70 percent of the economy, climbed 0.2 percent after a 0.1 percent gain the prior month, a Commerce Department report showed today in Washington. The median estimate in a Bloomberg survey of 76 economists called for a 0.2 percent advance. Incomes slumped 3.6 percent, sending the saving rate down to the lowest level since November 2007.
Employment gains, the rebound in housing and growing demand for autos will probably keep supporting consumer spending in the first quarter as the worlds largest economy picks up from an end-of-year slowdown. Even so, rising gasoline prices and the need to rebuild nest eggs may make it difficult for households to match last quarters performance.
Its going to be touch and go for the consumer for the next few months, said Ryan Sweet, a senior economist at Moodys Analytics in West Chester, Pennsylvania, who correctly projected the 3.6 percent drop in income. The consumer is going to be able to support the recovery, but theyre not going to be able to take it to a higher level, he said.
Stocks Drop Stock-index futures held earlier losses after the report. The contract on the Standard & Poors 500 Index maturing this month dropped 0.4 percent to 1,506.7 at 9:03 a.m. in New York.
Projections for spending ranged from a drop of 0.2 percent to a 0.4 percent gain.
The Bloomberg survey median called for incomes to fall 2.4 percent.
The slump in incomes in January was the biggest since January 1993 and followed a 2.6 percent jump in December. Some companies paid dividends and employee bonuses earlier than usual before tax rates went up this year, removing a gain usually seen in January. The Commerce Department estimated the January level of wages was reduced by about $15 billion and December was boosted by about $30 billion, reflecting the timing of the bonuses.
The saving rate dropped to 2.4 percent from 6.4 percent. Disposable income, or the money left over after taxes, dropped 4 percent after adjusting for inflation, the biggest plunge since monthly records began in 1959.
Consumer Spending Adjusting consumer spending for inflation, which renders the figures used to calculate gross domestic product, purchases rose 0.1 percent in January for a second month, todays report showed.
Consumer purchases grew at a 2.1 percent annualized pace in the fourth quarter, up from 1.6 percent in the previous three months, as Americans bought more durable goods including automobiles.
The economy grew at a 0.1 percent rate from October through December, less than forecast, as companies reined in gains in inventories and national defense outlays dropped 22 percent, the biggest since 1972, Commerce Department data showed yesterday.
Todays report showed a price gauge tied to consumer spending, which are the figures tracked by Federal Reserve policy makers, was little changed in January from the prior month. Over the past 12 months prices rose 1.2, the smallest year-to-year gain since October 2009. The rate compares with the central banks goal of 2 percent.
Excluding food and energy costs, prices climbed 1.3 percent in January from the same month in 2012, the smallest year-to- year gain since April 2011.
Less Inflation Little inflation, combined with sluggish growth, mean Federal Reserve policy makers are likely to continue unprecedented monetary easing measures.
Available information suggests that economic growth has picked up again this year, Bernanke said earlier this week in testimony to the Senate Banking Committee in Washington.
Still, Bernanke cited an estimate from the nonpartisan Congressional Budget Office that the spending cuts known as sequestration will cause a 0.6 percentage-point reduction in growth this year.
Given the still-moderate underlying pace of economic growth, this additional near-term burden on the recovery is significant, he said.
The expiration of the payroll tax cut in January, coupled with climbing gasoline prices, are trimming discretionary income and may damp household purchases in the first quarter.
Payroll Tax Congress and President Barack Obama allowed the payroll tax to return to its 2010 level of 6.2 percent from 4.2 percent at the start of the year, which means an American who earns $50,000 is taking home about $83 less a month.
The average price of a gallon of regular gasoline at the pump rose to $3.78 on Feb. 27, little changed from the previous days rate that was the highest in more than four months, according to AAA, the biggest U.S. motoring group.
On a brighter note, sentiment is rebound as employment grows. The Conference Boards sentiment index jumped in February from a revised 58.4 in January, data from the New York-based private research group showed this week. The measures 11.2- point jump was the biggest since November 2011, offsetting much of the almost 15-point slide over the previous three months.
Interest Rates Interest rates hovering near record lows and growing availability of credit are buoying the auto industry, including Fort Lauderdale, Florida-based AutoNation Inc. (AN), the biggest dealership group in the U.S. Attractive financing may push sales comfortably above 15 million this year, the highest since 2007.
We have the best financing available for our customers ever, Mike Jackson, chief executive officer of AutoNation, told a J.D. Power & Associates conference this month in Orlando, Florida.
Cars and light trucks sold at a 15.2 million annual rate in January after 15.3 million in December, according to data from Wards Automotive Group. Including Novembers 15.5 million rate, auto sales over the past three months have been the strongest in five years. February data is scheduled for release today.
But you won’t get 47% of the country to acknowledge that.
Still “Bush’s fault”, even though he’s been out of office 5 years, and didn’t have congress for the last 2 years of his admin.
So, 7 years later, it’s still not the rats’ fault.
How’s that “fundamental transformation” workin’ out for ya?
If you want to make a liberal mad just tell them this is the Age of Obama and the economy isn’t going to get any better. Works every time for me.
But, but, but, I thought the economy was in recovery?
Hey, look at the stock market. Just see how much the unemployment numbers have been driven down. The price of gasoline is some kind of historic level. We are producing a larger percentage of our own energy domestically than we have in years.
Mexico is looking kind of good, at the moment.
I tell them the economy
isn’t any better,
isn’t getting any better,
and WON’T get any better
as long as 0bama is in office and implementing “liberal”, ie, communist, policies.
This is what happens when you create and empower a huge anti-capitalist bureaucracy. The endless rules, regulations and dictates of Obama’s minions have stifled entrepreneurship, the creation of new business and the creation of wealth. The country is poorer.
But yet the Government and msm maintain that the economy is growing.
Yup. We are on the fast track to communism
Mastery of English: 3
Mastery of Democrat talking points: 10
(That's a "Chorus Line" reference: "Looks: 3, Dance: 10")
What a load of bs:
>>Excluding food and energy costs, prices climbed 1.3
4$ gas suffocates growth
also didn’t mention moving workers from full to part time
which will be devastating for any growth prospects
...and bread is over $3/loaf and gasoline is near $4/gal. Shame on this evil, greedy government for oppressing its citizens.
The economy is clearly in trouble. We have no real recovery. People are barely surviving and are now cutting into savings when their incomes drop. Yet, as others pointed out, a lot of Americans don’t seem to blame Obama and didn’t think that this horrible recovery was reason enough to kick him out. To the contrary, a lot of people’s answer to this is that we should hand out even more government checks and move further down the path of Welfare State Socialism that is killing us.
I say, "just four more years of this to go."
When he was elected, just after the crash, I told them, "this is going to last for ten years."
They didn't like that either.
I'm not liking it much, myself. But the fact that they're suffering for voting foolishly brings me some consolation.
Any more ‘recovery’ and we can all enjoy the spectacle of a national economy being given futile shocks with a giant defibrillator.
That is some recovery we got going on.
Cutting into savings.....correct, they are and for two reasons. Reason one is their pay is going down. Reason two is their savings are being eroded by “hidden” inflation. One more, they are getting no return on their savings and some have now jumped into the junk bond markets and growth stocks, a misnomer in a recession, and will get the double whammy, loss of principal and no ROI.
From CNBC just now:
“Stocks opened lower on the first day of March, with the Dow sliding below the widely-watched 14,000 level, weighed by a weaker-than-expected personal income report and disappointing economic data from Europe and China.
In addition, investors will be watching the last-minute budget talks in Washington as the $85 billion sequester, automatic budget cuts, go into effect Friday.”
OK now it is starting.
The revenue did not increase, because it is headed to China.
That is right. We offshored our manufacturing.
We buy stuff from China. China makes the money.
They grow. We shrink. See how easy that is.
(not joking here, not even one tiny bit)
Yeah, love it. The ‘sentiment’ index is up? Yep, there’s nothing like rising fuel and food prices coupled with declining incomes to get everybody in a chipper mood.