The Department of Commerce
announced in its "Personal Income and Outlays" report Friday that consumer spending put in a weak showing in July, rising just 0.1 percent as wages and salaries fell. Since consumer spending drives 70 percent of the economy, this is not good news to start off the third quarter. A key reason for the tepid spending was a sharp drop in government spending at all levels because of the federal budget sequester:
Private wages and salaries decreased $15.3 billion in July, in contrast to an increase of $31.3 billion in June. Goods-producing industries' payrolls decreased $4.2 billion, in contrast to an increase of $7.6 billion; manufacturing payrolls decreased $3.7 billion, in contrast to an increase of $5.3 billion. Services-producing industries' payrolls
decreased $11.2 billion, in contrast to an increase of $23.8 billion.
Government wages and salaries decreased $6.4 billion in July, compared with a decrease of $0.8 billion in June. Government wages were reduced by $7.7 billion in July and $0.7 billion in June due to furloughs that impacted several federal government agencies.
It's always wise not to read too much into statistics of just one or two months. The situation could change for the better. But with no end in sight for the sequester and the continuing slow growth of the economy as shown by other measurements, this certainly is not good news and could be the harbinger of more of the same to come. Doug Short
pointed out that personal income since 2012 "has been growing at an excruciatingly slow pace." Year over year, it's only up an inflation-adjusted 1.8 percent.
Martin Crutsinger of the Associated Press wrote:
"This is a disappointing report on a number of levels," said James Marple, senior economist at TD Economics. "Prospects for a pickup in economic growth in the third quarter hinge on a broad-based acceleration in spending by households and business to offset the ongoing drag from government. The data for the first month of the quarter are not following this script."
Several analysts said that economic growth is unlikely to match the 2.5 percent annual rate reported Thursday for the April-June quarter. That was more than twice the growth rate in the first quarter and far above an initial estimate of a 1.7 percent rate for April through June.
That annualized growth of 2.5 percent in gross domestic product for the second quarter was far better than expected after the paltry 1.1 percent of the first quarter. But various indicators in addition to consumer spending show that, overall GDP growth for 2013 will almost certainly be below 2 percent, another lukewarm performance that won't do much to improve the situation on the employment front with 25 million or so Americans either unemployed or
underemployed 68 months after the Great Recession began.
Other factors have held GDP growth back previously. But the sequester is crucial now. As New Deal democrat noted in an assessment of second-quarter growth, the drop in federal spending meant a minus 1.6 percent in GDP growth in the second quarter and the in state and local spending was good for another minus 0.5 percent. Altogether, the subtraction from government expenditures at all levels was minus 0.9 percent. The sequester is hurting.