Consumer Spending Stagnates in June in Latest Blow to Economic Recovery

According to the Bureau of Economic Analysis: National Economic Accounts (link below), personal income and consumer expenditures were both flat in June compared to the month before.

In addition, the national personal savings rate climbed to 6.4% of post-tax income in June, which is the highest level seen since June of 2009. This works out to personal savings of $725.9 billion in June, up from $713.9 billion in May.

One more figure that I'd like to toss at you - the Wells Fargo/Gallup Small Business Index fell to its lowest level since the index's inception in August of 2003. According to the poll, small business owners have turned pessimistic as a group about their operating environment over the next 12 months.

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There is a real worry out there right now about the current state of the "economic recovery" in the United States.

In Q4 2009, the United States economy posted an annualized growth rate of 5.0%. There was real hope that the economy was starting to find its legs and that an economic upswing was about to take flight.

However, the last two quarters (3.7% Q1, 2.4% Q2) have seen the "economic recovery" stumble and slow, and many people are now justifiably worried that the country may soon find itself in a "double-dip recession".

While some people may still be outwardly optimistic, the actions of the average consumer and small business owner are revealing the true mindset of the American citizen.

Flat consumer spending growth in June, coupled with an increased in the national personal savings rate, show you that the US consumer is retreating into a shell right now. You can't blame them either - there are thick black storm clouds on the horizon, and many people are hunkering down and bracing for another economic contraction.

In addition, Americans continue to be very worried about the state of the jobs market. There is just no relief there as jobs continue to be very hard to come by. Treasury Secretary Timothy Geithner believes that the unemployment rise may rise again before it finally starts to fall - given that the national unemployment rate is currently sitting at 9.5%, can you really blame people for wanting to hold off on any new purchases? There is just too much uncertainty right now in terms of the near-term future of the economy - who wants to be bold in times like this?

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As mentioned earlier in this article, small business owners have turned negative as a group as well. A pessimistic core of small business owners means that they likely won't be doing too much in the way of hiring anytime soon. If you are a small business owner and fretting about the state of the economy, then it's perfectly understandable that you would want to hold off of any new hires. Small businesses are an extremely valuable source of new jobs for the country, and this tap has basically been shut off for the time being.

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The next couple of quarters are going to be very interesting to watch - can the United States' economy regain its composure, or will it tip into another recession?

Source: BEA.gov - Personal Income and Outlays, June 2010

Source: DaveManuel.com - Historical GDP Numbers in the United States

Filed under: The Economic Meltdown