Troubling Trend: Income Down, Spending Up

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Tue, Aug 4 - 11:55 am EDT | 5 years ago by
Comments: 5
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Today a report from the Commerce Department shows that personal income fell 1.4% in June. This is not terribly surprising, since unemployment sits at 26-year highs and we are still struggling out of a recession. What did surprise me, however, is that spending went up. Sure, inflation meant that the spending rate fell (it’s impossible to keep track of all these convoluted numbers), but the idea that spending increased even as personal income fell is somewhat troubling. That’s right: We’re making less and spending more.

85914515_bun2j-sAlso interesting: The savings rate in June fell. While Americans might have changed their savings habits to accommodate recession, it appears that — for some at least — the change is only temporary. With signs that economic recovery might be coming, and with people beginning to feel a little more financially secure, it appears as though things may be sliding back into business as usual. Which is not a particularly good thing. One would hope that we as a society have learned some valuable lessons from the financial crisis and the recession. Lessons that include such tried and true personal finance basics as:

  • Spend less than you earn.
  • Build up savings.
  • Plan for the future.
  • Limit your purchases.
  • Pay down debt.
  • Provide a contingency plan and financial safety net.

We will see as the months progress whether or not these lessons have been learned. Or whether we are falling back into the same financial cycle — one that will repeat itself with even more catastrophic effects down the road.

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  • http://www.thebizoflife.blogspot.com/ The Biz of Life

    I don’t think we are out of the woods yet. Large corporations are still laying people off, government is the only place hiring and is sucking up a lot of potential investment capital to fund its deficits. I think we have another leg down in front of us before starting a real recovery in 2010.

  • http://www.consumerismcommentary.com/ Flexo

    I’m not surprised that people are saving less and spending more as they’re feeling a little better about the economy — at least, for those who are not out of work. Unemployment is about to hit a new recent high.

  • Miranda Marquit

    Your right that it probably depends on individual situation. I bet that those who are out of work aren’t spending more…

  • Miranda Marquit

    The recovery will definitely take a while. The end of the recession does not mean a recovery. And I think you are right that the recovery won’t START until 2010. Something like this, that is years in the making, can’t be fixed overnight.