US Consumer Spending, Pending Home Sales Rise; Incomes Fall



04 August 2009

Customers pay for their purchases at the check out counter of the new JC Penney store in the Manhattan Mall during the grand opening in New York, 31 Jul 2009
Customers pay for their purchases at the check out counter of the new JC Penney store in the Manhattan Mall during the grand opening in New York, 31 Jul 2009
American consumers spent more and saved less while their incomes fell, according to the latest U.S. government figures. Meanwhile, America's housing market is showing continued signs of possible recovery.


Consumer spending accounts for more than two-thirds of U.S. economic activity, making it one of the most closely watched economic indicators. The Commerce Department reports that Americans boosted spending 0.4 percent in June - slightly more than what economists had expected. It was the second consecutive monthly rise in consumer spending, and it was accompanied by a lower savings rate.

Americans spent more despite lower incomes. Personal income fell 1.3 percent - the largest monthly drop in four years. The decline reversed a 1.3 percent increase in personal incomes in May that economists attributed to special payments the government made to try to revive the economy.

But PNC Financial Services Group economist, Robert Dye says there might be better times ahead.

"As we get well into the third quarter and the fourth quarter [of this year], we will start to see income numbers stabilize as job losses stabilize and hopefully swing back to positive by the end of the year and these spending numbers start to firm up a little bit," he said.

In recent days, many Americans have been spending on new cars - nearly exhausting a $1 billion federal program that pays consumers up to $4,500 to trade in old vehicles for new, more fuel-efficient ones.

"The 'Cash for Clunkers' [i.e., cash for old cars] program has been an unqualified success," said Vice President Joe Biden. "It has boosted demand for cars and spurred consumer spending."

Senate Majority Leader Harry Reid is expressing confidence that the Senate will approve a $2 billion extension of the program.

Last week saw a boost in existing home sales in the United States. Now there is word that pending home sales are also up for the fifth consecutive month - a sign that the long-awaited recovery in America's battered housing sector might continue.

Walter Maloney is a spokesman for the National Association of Realtors, which tracks home sales.

"Home sales should continue to gradually trend upward over the course of the year," he said. "We have got affordable prices and historically-low interest rates."

Sharply declining housing values and a rash of home foreclosures in 2007 and 2008 were blamed in large part for triggering the U.S. financial crisis and helping to plunge the nation into the longest recession since World War II. A rebound in the housing sector is seen as one key to an overall economic recovery.