Economic Watch: Consumer Spending Posts First Decline Since January

August 29, 2014

By Evan Lockridge

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Consumers unexpectedly backed off on personal spending in July by just a bit, while income moved slightly higher, according to a new U.S. Commerce Department report, raising concerns that wages are not keeping up with household needs.

Consumer spending fell 0.1% from the month before, following a 0.4% increase during June. It was the first drop since January.

Personal income moved 0.2% higher during the same time after a upwardly revised 0.5% gain in June, the smallest hike so far this year.

Prices linked to consumer spending rose 1.6% compared to a year ago, and in June it was also up 1.6% year over year. Core prices, which exclude food and energy, are up 1.5% from a year ago. 

“The growing weakness in goods consumption, as shown by a declining trend in retail sales, has now extended to overall consumer spending, with service consumption flat at the start of the third quarter,” said Lindsey Piegza, chief economist for the investment firm Sterne Agee. “Yesterday's revision to GDP left consumption unrevised at a 2.5% increase, a marked improvement from the weakness at the start of the year -- but a far cry from the average 4% spending pace in the second half of 2013.”

In other words, she said, “the consumption ‘rebound’ from first-quarter's slump was short-lived and lackluster, suggesting waning momentum in the consumer sector is carrying over as we head into the second half, against the backdrop of minimal wage increases and still-disappointing employment gains concentrated on part-time and temporary hires.”

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