- The Washington Times - Tuesday, August 4, 2009

Americans’ personal incomes suffered their biggest drop in four years in June, as income from wages and salaries dipped for the eighth month in a row, the result of soaring unemployment, sluggish wages and worker furloughs.

Personal incomes tumbled 1.3 percent in June, the Commerce Department reported Tuesday. That decline 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 increased 0.4 percent in June, but that gain was more than 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 for 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.

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

“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.

Because of 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.

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, fell 1.9 percent during 2008, much steeper than the 0.8 drop reported earlier.

Consumer spending, which accounts for more than 70 percent of GDP, now has declined during four of the previous six quarters. In the second quarter, consumer spending was 1.8 percent below its year-earlier level.

“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 also has hurt consumption. The personal savings rate jumped to 5.2 percent last quarter after having plunged to 1.2 percent during the first quarter of last year.

Despite last month’s jump in prices, inflationary pressures over the past 12 months have been very subdued. An inflation gauge tied to consumption expenditures showed that June prices were 0.4 percent below their June 2008 level, the biggest 12-month drop since records began in 1960. Also, the Federal Reserve’s preferred inflation gauge, which excludes the volatile food and energy sectors, increased just 1.5 percent during the past 12 months, the smallest rise since December 2003.

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