Lack of Consumer Confidence a Concern for U.S. Economy

We already knew the Tea Party and their Republican members in Congress were willing to play a game of chicken with America’s economy, bringing us to the brink of disaster until a debt ceiling hike was finally agreed to Tuesday. Less obvious but increasingly apparent is that the protracted struggle to avoid default — coupled with the continued talk of a double-dip recession — has left a new dent on consumer sentiment about the economy. Fresh data from the Bureau of Economic Analysis on consumer spending look good at first until we dig deeper:

Personal income increased $18.7 billion, or 0.1 percent, and disposable personal income (DPI) increased $16.3 billion, or 0.1 percent, in June, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) decreased $21.9 billion, or 0.2 percent.

Real disposable income increased 0.3 percent in June, in contrast to a decrease of less than 0.1 percent in May.

Personal saving — DPI less personal outlays — was $620.6 billion in June, compared with $581.7 billion in May. Personal saving as a percentage of disposable personal income was 5.4 percent in June, compared with 5.0 percent in May.

Increases in personal income and disposable income are great — but not when consumer spending (PCE) is dropping off at the sharpest level since September 2009. The fact that there is no additional fiscal stimulus on the horizon is unfortunate, as government is an entity that can step in and push things along when consumers grow hesitant.