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Consumers Remain Thrifty In April

Slight rise in disposable income doesn't offset savings

By Mark Huffman
ConsumerAffairs.com

June 1, 2009

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Consumers made more money in April and held onto it instead of spending it. The U.S. Commerce Department reports income rose by 0.5 percent in April but spending fell 0.1 percent.

Disposable income — and money consumers could have spent — rose 1.1 percent. The personal savings rate rose to 5.7 percent, the highest since 1995.

Joel Naroff, chief economist at Naroff Economic Advisors, Holland, Pa., said the stimulus bill may have put money into households' hands, but they aren't rushing out to spend it.

"Disposable income, the money we have left over after the government takes its share, rose sharply in April. Jumps in unemployment compensation and social security, as well as a huge decline in tax payments more than made up for the fact that wage and salary gains barely budged," Naroff said. "Of course, with all the job declines, the small rise in labor income was a welcomed sight. Unfortunately, neither a borrower nor a spender were we."

Consumption fell as demand for durables and nondurables were off fairly solidly. Consumers did buy more service, which almost offset the cutbacks in the other areas. On the inflation front, prices eked out a minor increase though when you exclude food and energy, they were up a more strongly.

The good news, says Naroff, is that consumers have a lot more money to spend. But until they start spending it, he says it will do little to stimulate the economy.

"However, consumer confidence has been rising sharply and while people may still be worried, I suspect the surge in positive expectations about the future will start showing up in increased demand for all types of goods," he said.

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