- The Washington Times - Wednesday, August 5, 2009

Americans’ income from wages and salaries dipped for the eighth month in a row in June, hampering consumer spending and threatening the vigor of the economic recovery, analysts said.

Wage and salary payments declined 0.4 percent in June, the biggest drop since March, the Commerce Department reported Tuesday. After tumbling eight months in a row, wage and salary income is now more than 5 percent below its cyclical peak reached last August.

As a result of soaring unemployment, sluggish wages and worker furloughs, wages and salaries have been under enormous pressure during the longest, deepest postwar recession.

Due to major data revisions, “this year’s declines in both wage and salary income and dividends have been much more severe than previously believed, leaving consumers with less income than previously thought,” said Nigel Gault, chief U.S. economist for IHS Global Insight.

The wage-and-salary situation isn’t likely to turn around soon.

“With continued weakness in the labor market, we do not expect strong gains to return for some time,” said Adam York, an economist at Wells Fargo Securities.

Overall, personal incomes tumbled 1.3 percent in June, the biggest monthly drop in four years, the Commerce Department reported. That wiped out a comparable gain in May, which resulted largely from one-time transfer payments included in President Obama’s $787 billion economic stimulus plan.

In May, the federal government sent $250 checks to eligible recipients of Social Security, Supplemental Security Income and railroad retirement benefits, temporarily boosting personal income for that month by an annual rate of nearly $160 billion.

Consumer spending did increase 0.4 percent in June, but that gain was wiped out by inflation, which jumped 0.5 percent.

After adjusting for price changes, mostly related to rising gasoline costs, consumer spending actually declined by 0.1 percent in June. The price of a gallon of regular gasoline jumped from $2.27 in May to $2.63 in June, according to the Energy Information Administration.

Before falling in June, inflation-adjusted consumer spending was flat in May after dipping 0.2 percent in both March and April.

Data revisions released Friday revealed that the economy declined much more severely during 2008 than previously reported. Gross domestic product, the broadest measure for the output of goods and services, plummeted 1.9 percent during 2008, much steeper than the 0.8 percent drop reported earlier.

Consumer spending, which accounts for more than 70 percent of GDP, has now declined during four of the previous six quarters.

“When given sufficient incentive, as in ‘cash for clunkers,’ consumers will spend,” Mr. Gault said. “But reduced wealth, high debt, tight credit and a weakening labor market are all weighing on consumers. Consumers remain a missing link in hopes for a strong recovery.”

After suffering steep drops in the value of their homes and their stock portfolios, households hunkered down during the recession and resumed saving, a trend that has also hurt consumption. The personal savings rate jumped to 5.2 percent last quarter after having plunged to 1.2 percent in the first quarter of last year.

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