Income Flat, Consumer Spending Rises

Numbers for personal income and consumer spending in July were released this morning, and the tale is one that illustrates a slightly improving economy. Or at the very least, an economy that is not getting worse. These small indications of economic improvements provide a measure of confidence that the worst of the recession has passed, and that economic recovery is somewhere on the horizon. Albeit a distant horizon.

Personal income

Personal income was flat in July, but that is a change from when it was decreasing slightly. There was actually an overall gain in compensation, but that was offset by the fact that dividend income and interest income are down. It also helps that inflation is practically non-existent right now. That means that income is not be eroded by a decline in purchasing power. Of course, there are dire prognostications for inflation once the economy starts to grow again. The savings rate also pulled back, due to the flat income and an increase in consumer spending.

Consumer spending

Despite the fact that incomes didn’t grow, consumer spending rose a little bit. However, it was a rather modest increase. Many are attributing the rise in personal spending to the initial stages of Cash for Clunkers. This month, for August, with the continuation of Cash for Clunkers and back-to-school shopping, there are expectations of bigger increases consumer spending. An increase in consumer spending is expected to help some companies improve their revenue for Quarter 3 of this year.