Consumer spending in the United States rose in July as Americans jammed auto showrooms to take advantage of the Cash for Clunkers program while avoiding other purchases.
Last month's 0.2 percent gain in spending, which was in line with forecasts, was reported yesterday by the Commerce Department. It followed a 0.6 percent increase in June.
But excluding cars, purchases were flat. So while auto dealers benefited from the Obama administration's auto incentive plan, which ended this month, retailers such as Kohl's Corp. and J.C. Penney Co. struggled to lure customers shaken by mounting job losses. Spending gains are not likely to be sustained as incomes stagnate and households pay down debt, casting doubt on the strength of the economic recovery.
"The Cash for Clunkers program helped auto sales but hurt other sales, which shows consumption remains weak," said Christopher Low, chief economist at FTN Financial in New York. "Consumers don't want to spend on other things and cannot spend, to some extent, because income growth is still anemic."
Under the incentive program, motorists traded in nearly 700,000 older vehicles for new, more fuel-efficient cars.
A separate report yesterday showed that the Reuters/University of Michigan final index of consumer sentiment dipped to 65.7 in July.
Personal incomes were unchanged in July after dropping 1.1 percent in the prior month. The decrease in income in June reflected the fading boost from government stimulus-related tax cuts and transfers. Wages and salaries posted the first gain of the year, increasing 0.1 percent after a decline of 0.3 percent the prior month.
Stronger consumer spending is the key to a sustained recovery from a recession that began in December 2007. For spending to rise, analysts said, income growth has to resume.
"Consumers just don't have the financial firepower to go out and spend more," said Mark Zandi, chief economist at Moody's Economy.com in West Chester. "Unless businesses curtail their job cuts, the recovery could very well peter out."
July was the eighth month out of the last 10 in which incomes have either fallen or failed to grow. Americans have been hammered by massive layoffs and efforts by some companies to restrain costs by forcing workers to take unpaid days off.
The savings rate fell to 4.2 percent from 4.5 percent in June as spending inched up while incomes stagnated.
Economists expect the savings rate to rise in coming months to about 6 percent as workers try to rebuild depleted nest eggs. The process of rebuilding savings is one of the factors expected to depress consumer spending and weaken the broader recovery.
Financial results and forecasts recently released by individual retailers signal that shoppers remain under pressure. J.C. Penney, the nation's third-largest department-store chain, issued a third-quarter earnings forecast that trailed analysts' estimates and said sales may fall 3 percent to 5 percent from the same period last year. Kohl's said second-quarter profit fell 3 percent as sales at stores open for at least a year declined.