U.S. Consumer Spending Stalls as Wages Stagnate

Consumer spending was unchanged in May, the Commerce Department said, the flattest level since September 2009. And when adjusted for inflation, spending actually dropped 0.1 percent.

April’s consumer spending figures were revised to show a similar decline when adjusted for inflation. That represented the first declines in inflation-adjusted spending since January 2010.

Incomes rose 0.3 percent for the second consecutive month. But adjusted for inflation, after-tax incomes increased only 0.1 percent in May, after falling by the same amount in the previous month. By that measure, incomes have been essentially flat since the beginning of the year.

Slow wage growth hurts the broader economy because consumers have less money to spend. Consumer spending accounts for 70 percent of economic activity. Increases in gas prices have forced many consumers to cut back on discretionary purchases, such as furniture and vacations.

At the same time, fewer jobs and high unemployment leave workers with little leverage to ask for raises. The economy created only 54,000 jobs in May, the lowest amount in eight months. The unemployment rate rose to 9.1 percent last month.

The economy expanded at an annual rate of 1.9 percent in the January-March period. Many economists say they believe that growth is only slightly better in the current April-June period. Economists are optimistic for the second half of the year, saying growth should pick up to a 3.2 percent pace.

They note that two of the biggest factors slowing the economy are abating. Gas prices have eased since peaking in early May at a national average of nearly $4 a gallon, and American factories are expected to begin producing more once Japan’s factories resume more normal operations. The March 11 earthquake and tsunami in that country has led to a parts shortage, particularly for auto and electronics manufacturers.

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