WASHINGTON — Household income in the United States is essentially stagnant, raising doubts about whether consumers already hurt by job losses can sustain an economic recovery.
The now-ended Cash for Clunkers program helped lift consumer spending last month and is expected to deliver a bigger boost in August. But any economic rebound likely would falter if shoppers lack the income to spend more in the long run.
Especially in the U.S., consumer spending is essential: It drives about 70 percent of economic activity — more than for most European nations and well above the rates in developing countries such as China.
U.S. retailers already are paying the price for flat income growth and weak consumer spending. A survey of big retail chains showed that shoppers remained tightfisted in July. That raised fears not just about back-to-school sales but also about the make-or-break holiday shopping season.
“Consumers just don’t have the financial firepower to go out and spend more,” said Mark Zandi, chief economist at Moody’s . “Unless businesses curtail their job cuts, the recovery could very well peter out.”
Americans’ purchasing power has been battered by the 6.7 million jobs that have vanished since the recession began in December 2007.
Companies also have cut costs by forcing workers to take unpaid days off or to work part time.
And some consumers have pared their spending because their pay hasn’t kept pace with their expenses or because they’re using more money to save or reduce debt. Personal incomes were unchanged in July, the Commerce Department said Friday.
Troubling signs
STAGNANT INCOMES: Household income failed to grow last month as consumer spending edged up 0.2 percent, aided by the now-ended Cash for Clunkers program.
SPENDING CONCERNS: Personal incomes have fallen or remained unchanged in eight of the past 10 months. Economists worry that with incomes flat and unemployment likely to keep rising, households won’t be able to boost spending, which accounts for about 70 percent of total economic activity.
LIMITED GROWTH: Many economists say the Clunkers program and other government stimulus efforts are boosting economic growth in the final half of this year, ending the recession. But they worry that growth could falter early next year unless incomes grow and the job market improves.
The Associated Press
