A batch of economic reports Monday (June 1) showed that consumers were still pinching pennies even as the economy continued to emerge from a brutal winter.
USA Today reported that the data shows construction spending rising sharply and manufacturing activity expanding at a faster pace after a string of slowdowns. And with household finances firming, economists say it’s only a matter of time before consumers step up their purchases and power solid growth in the second half of the year.
In April, consumption was flat despite a 0.4% rise in personal income, the Commerce Department said. Spending on durable goods such as cars and furniture fell 0.8% while outlays on services ticked up 0.1%. The failure of consumers to splurge with their windfall from low gasoline prices is confounding economists.
“You would think it would spill into better consumer spending,” says Joseph LaVorgna, chief U.S. economist of Deutsche Bank.
Instead, Americans are using their extra cash to pay down debt and fatten their bank accounts. The portion of disposable income socked away rose to a historically high 5.6% from 5.2% in March.
In a report Goldman Sachs says consumers initially believed low gas prices were fleeting but recently became convinced they’ll stick around, portending a pickup in spending this year.
LaVorgna says strong job growth – averaging nearly 200,000 a month so far this year and 260,000 in 2014 — and faster wage gains in coming months will also fuel stronger consumption.
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