Money Matters - Simplified

American consumers reduce spending

Americans are refraining from purchasing goods like cars, electronics and household appliances and furniture.

A recent report by the Commerce Department released Tuesday reveals that Americans are spending less as there was barely any growth in income in the last nine months.

Consumer spending fell down 0.2 percent in June.

The cut in spending is the first drop since September 2009. Unemployment is on the rise and Americans are preferring to put more money in savings.

Biggest drop in the last 20 months
The biggest economy of the world grew very little during the first half of the present year as the government estimates revealed that GDP rose only 0.4 percent in the first quarter of this year.

Income rose 0.1 percent, and most people preferred to save their money instead of spending it. The rate of personal savings rose to 5.4 percent, highest after August 2010.

Paul Dales, senior U.S. economist at the Capital Economics, commented, “The recent run of weak economic news has made us more concerned that any rebound will be more modest than previously looked likely.”

Only 18,000 jobs were added in the month of June and the unemployment rate rose to 9.2 percent, the highest in the present year.

Americans spending less
The recent data shows that spending by Americans has softened in the second quarter of this year, indicating that the already sluggish economy is declining.

Americans are refraining from purchasing things goods like cars, electronics and household appliances and furniture. The rise in gas prices and shrinking employment opportunities have made them make cuts in domestic budgets.

Consumer spending is closely watched by the economists as it accounts for around 70 percent of the economic activity.

Only 18,000 jobs were added in the month of June and the unemployment rate rose to 9.2 percent, the highest in the present year. The employers have also reduced hiring. The report about employment in the month of July is expected to be released on Friday.

The most noticeable drop in spending was seen in food and gas, while the spending on non-durable goods dropped 5.5 percent.

With a rise in household debt and a drop in home prices, consumers have little cash to spare for spending. Economy is so dependent on consumer spending that economists fear that any fall in it could hamper economy.

Joshua Shapiro, an MFR economist, said, “Without significant improvement in the labour market, consumer spending and hence overall real GDP will prove disappointing in coming quarters.”