Wednesday, August 5, 2009

American Incomes Head Down, Threatening Recovery in Spending

Household income in the U.S. is weakening as the influence of the government’s stimulus plan fades, prompting economists, Federal Reserve officials and a Nobel laureate to warn that consumer spending may stumble.

“Consumers have started to change their behavior and they are going to save more,” said Richard Berner, co-head of global economics at Morgan Stanley in New York and a former researcher at the Fed. “You have pressure on wages, you have employment still declining.”

Wages and salaries, which drive recoveries in spending, fell 4.7 percent in the 12 months through June, the biggest drop since records began in 1960, according to Commerce Department figures released today. The Obama administration’s tax cuts, extended jobless benefits and a one-time Social Security bonus have helped mask the damage done by the worst employment slump since the Great Depression. (more)

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