y Julie Strickland, NYCity News Service
Personal income grew modestly in January, but Americans are not embarking on a spending spree just yet.
The increase in income was small at $37.4 billion, compared to $60.2 billion in December, according to the Bureau of Economic Analysis. The slight boost to consumers’ pockets came from a variety of places. Pay raises for military personnel gave personal income a lift, as did cost-of-living adjustments to social security benefits. Employer contributions to employee pension and insurance funds increased. Owner-operated businesses saw growth.
But despite these increases, spending was stagnant. At 0.2 percent, it was up only slightly from November and December and has yet to recover beyond October numbers. Consumption didn’t keep pace with the January jobs report, in which the Labor Department boasted the addition of 243,000 new jobs and an unemployment rate that fell to 8.3 percent. This is the lowest unemployment rate since 2009, but consumers aren’t convinced that this trend of job growth will continue.
Joseph Brusuelas, a senior economist with Bloomberg, LP, said that consumer confidence remains low because the employment situation isn’t as rosy as it seems.
“The numbers don’t mean we’re going to have a lot of hiring, just less firing,” he said.
Consumers were cautious with their money, saving only marginally less in January than they did in December. And they are not spending beyond their means, making economic growth all the more dependent on income.
In this climate, price hikes on everyday goods make consumers pull back on their spending even more. Food prices increased in the final quarter of 2011, resulting in higher than anticipated inflation for beef, veal, eggs, fats and oils. Over the course of 2012, the cost of food is expected to increase more than 2.5 percent.
Gas prices are now on the rise as well. But Jonathan Basile, director of U.S. Economics at Credit Suisse Holdings, said he doesn’t think the higher cost of gasoline will have much effect on spending just yet.
“We’re in the middle of a range between $3 and $4, and I think households are used to this price,” Basile said. “Even if Americans have to pay a little more, they still need gas. It’s not like they’re going to suddenly change their behavior and start biking or walking everywhere they go.”
The modest growth in personal income means the economy is on the upswing, but stagnant spending is making that rebound painfully slow. The current growth pales in comparison to historic norms.
U.S. Federal Reserve Chairman Ben Bernanke delivered a pessimistic semi-annual assessment of the economy before the House of Representatives on Wednesday. He predicted that the GDP growth in the next few quarters will be around 2.25 percent- the same rate seen in the second half of 2011.
But his is an exceptionally negative view. Even the Fed’s top rate-setting committee is a bit more hopeful, placing their growth estimates between 2.2 and 2.7 percent.
The gradual increase in jobs and salaries that we are seeing now will, over time, build incomes to the point that people are willing to go back out and spend. But it’s too early to celebrate just yet.