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The New Economy

Fall in salaries, wages hurting consumer spending

US salaries and wages fall 0.2 percent, hurting prospects for consumer spending.

By / October 30, 2009



If anyone needs an explanation why consumers are sounding increasingly like Scrooge the closer it gets to Christmas, a new report on personal income offers the answer:

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Americans' paychecks aren't growing.

They actually shrank 0.2 percent from August to September, according to a Commerce Department report released Friday. Except for a couple months this summer, that was the lowest total since 2006. The fall was more acute in the private sector, but that was masked because government payrolls reached a new record(!) of $1.19 trillion in September.

With income down (because fewer people are working), the prospects for increased spending this holiday season are fading. Consumer spending has been rising at an annual of 2.6 percent from June through September (both before and after the "cash for clunkers" program), points out Nigel Gault, an economist at IHS Global Insight. "The question is whether consumers can keep this up," he says.

Gault's answer? Probably not, absent a boost in incomes. He forecasts it will be 1 percent or less in the fourth quarter.

Already, consumers' outlook had been souring, causing forecasters to predict a dip in holiday spending this year despite high-profile efforts by retailers to generate sales.

Uncle Sam is helping, of course, with the temporary federal tax cut and increased government transfers. But even that won't be enough to lighten the mood this Christmas, unless it's coupled with some good cheer and resurgence in the private sector.
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