Consumer spending: what we say vs. what we do

Consumer spending

Consumers and businesses both say they’re as confident as they’ve been in the economy in years despite a stall in personal income and spending.

The government reported personal spending fell 0.1 percent in July, following a 0.4 percent increase in June. Personal income rose 0.2 percent in July, a weaker-than-expected gain and the lowest since December 2013.

Meanwhile, the Reuters-University of Michigan Consumer Sentiment Index rose at the end of August, with the current conditions measure hitting its highest level since summer 2007, before the Great Recession hit.

The spending decline in July was partly a function of lower utility and gasoline bills, said economist Chris Christopher at IHS Global Insight. “That can be a good thing in many cases,” he says. “If you have a smaller electricity bill at the end of the month.”

Christopher says lower energy costs in July might result in consumers devoting extra discretionary spending to back-to-school purchases in August.

Still, combined with weak income gains in July, the consumer indicators pointed to a still-weak economic recovery. And yet, consumers now feel better about current economic conditions than they have felt since before the Great Recession.

“The fact that we’re the highest in seven years is good,” said Mark Vitner, senior economist at Wells Fargo. “It means that we’re better off than where we were a year ago or two years ago. But it still doesn’t compare to where we would be if economic conditions were truly great.” Vitner said consumers weren’t showing extremely strong satisfaction with the economy during the 2000s either, in spite of rising home prices and equity markets.

Sarai St. Julien, who was shopping at a neighborhood grocery store in Portland, Oregon, echoed the evidence in the consumer data.

“I feel more confident, but still I have to be careful,” St. Julien said. “We got hit pretty hard, my husband lost his job, and we kind of had to put ourselves back together and sold a lot of personal belongings to do it. We are doing better, he’s got a good job, but we’re still  sort of digging out of a hole.”

About the author

Mitchell Hartman is the senior reporter for Marketplace’s Entrepreneurship Desk and also covers employment.

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