Consumer spending up despite rising layoffs

The Associated Press
Wednesday August 01, 2001

WASHINGTON — Consumers, a key force keeping the economy afloat, spent vigorously in June despite rising layoffs and a volatile stock market. Incomes rose modestly. 

The Commerce Department reported Tuesday that consumer spending, which accounts for two-thirds of all economic activity, rose by a bigger-than-expected 0.4 percent in June, following a 0.3 percent rise in May. 

Americans’ incomes rose by a solid 0.3 percent, after a 0.2 percent increase the previous month. 

The spending and income figures aren’t adjusted for inflation. 

When consumer spending is adjusted for inflation, it rose by 0.2 percent, half as fast as the unadjusted 0.4 percent gain. 

One of the main factors that has kept the country from slipping into recession during the yearlong economic slowdown has been steady spending by consumers. 

Some economists worry that if the job market were to seriously weaken in the months ahead, spending might collapse, throwing the country into recession. 

The nation’s unemployment rate rose to 4.5 percent in June and businesses eliminated 114,000 jobs. Many economists are predicting the July jobless rate will climb to 4.7 percent and that another 38,000 jobs will be cut. The government will release the employment report Friday. 

Other analysts believe the country will be able to dodge a recession, predicting that tax-rebate checks and the Fed’s aggressive credit easing will lift economic growth later this year. 

The administration is also urging Congress to give it the negotiating authority it needs to strike new free-trade agreements as a way to boost economic growth. 

“Free trade is an antidote for our economic ills,” Commerce Secretary Donald Evans said Tuesday in commenting on the income and spending report. “We need more than open wallets. We need open markets. Trade promotion authority is needed now more than ever.” 

In an effort to avert the first recession in the United States in 11 years, the Federal Reserve has slashed interest rates six times this year, totaling 2.75 percentage points. Many economists believe the Fed will cut rates again at its next meeting, Aug. 21. 

In June, spending on durables rose by 1.5 percent, following a 0.2 percent drop in May. 

Spending on nondurables fell by 0.2 percent, after a 0.6 percent rise. 

Spending on services increased 0.4 percent in June, following a 0.2 percent gain. The services category includes such things as gas and electric utilities, visits to doctors, bus and train fares and rent for housing. 

None of the figures is adjusted for inflation. 

With the pace of spending outpacing income growth, the nation’s personal savings rate dipped to 1.1 percent in June, after a 1.2 percent reading in May. 

Annual revisions, based on better data, also released Tuesday resulted in improvements in monthly disposable income figures, which lifted the savings rate out of negative territory for January through May. 

Economists say the savings rate doesn’t provide a complete picture of household finances because it doesn’t capture gains realized from such things as higher real-estate values or from financial investments.