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Signs point to slow, weak recovery

Sat., Oct. 31, 2009

Stagnant incomes, drop in spending reported

WASHINGTON – Flat incomes suggest more weakness ahead in consumer spending, reinforcing concerns about a ho-hum holiday shopping season and a sluggish economic recovery.

“This recovery is going to be very weak. Consumers are in no position or mood to spend. Their wages are down and they can’t get credit,” said Sung Won Sohn, an economics professor at California State University’s Smith School of Business.

Concerns about the economy sparked by disappointing government data on spending and incomes sent stocks down Friday, erasing the previous day’s big gains. The Dow Jones industrial average lost about 250 points, and broader indexes also fell.

The Commerce Department reported that personal incomes were stagnant in September while the all-important wage and salary category dropped 0.2 percent, as unemployment rose.

Consumer spending – which accounts for 70 percent of total economic activity – dropped 0.5 percent, the first decline in five months and the biggest since December.

The spending retreat reflected a sharp falloff in auto sales following a spike in August from the government’s cash for clunkers program.

The overall economy, as measured by the gross domestic product, actually grew at a 3.5 percent rate from July through September, signaling an end to the longest recession since the 1930s.

But analysts said the income and spending report underscored fears about a weak recovery.

Some analysts believe that GDP growth, which received a big boost from the government’s stimulus programs in the third quarter, will slow to 2 percent or less in the current quarter.

Sliding incomes and rising energy costs further darken the outlook for consumer spending during the holidays. People who do spend will stick to discounters like Wal-Mart Stores Inc. and Target Corp., and continue shying away from big-name department stores like Macy’s, said John Lonski, chief economist of Moody’s Capital Markets Group. Price will be key again this year.

“It most definitely limits the upside for consumer spending and scares the wits out of retailers,” Lonski said, adding that consumers are “going to spend as though the economy is still in a recession.”

“If you don’t make it, you can’t spend it, especially with the access to credit much reduced.”

A second report Friday showed that wages and benefits including health care rose just 1.5 percent for the 12 months ending in September. That’s the smallest increase for the Labor Department’s Employment Cost Index on records that date to 1982.


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