Tags: Consumer | spending | revive | economy

Experts: Wary Consumers Unlikely to Revive Slowing Economy

By    |   Tuesday, 03 Jul 2012 09:45 AM

Consumer spending may account for 70 percent of GDP, but don’t expect the consumer sector to ignite the economy’s tepid recovery, experts say.

GDP growth slumped to 1.9 percent in the first quarter from 3 percent in last year’s fourth quarter.

The problem is that job growth is slowing. That means that personal income growth is slowing, which means that personal spending is slowing. And that in turn holds down economic growth.

Editor's Note: How You Lost $85,000 During the Last Decade. See the Numbers.

Non-farm payrolls have risen an average of less than 100,000 per month in March through May, compared to more than 250,000 during the prior three months, The Wall Street Journal reports.

As a result, consumer spending eased lower in May for the first time in a year.

"It's finally catching up with consumers," Chris Christopher, an economist at IHS Global Insight, tells The Journal. IHS has cuts its consumer spending forecast for the second quarter.

"Things are not as good as we thought," Christopher says.

To be sure, not all economists are bearish on consumer spending. Some say falling gasoline prices, an improved housing market, and a decrease in household debt will buoy the consumer sector.

But gasoline prices may not have much impact in the short run.

“The decline in gasoline prices, especially if it continues, will provide some relief going forward, but income growth is the impediment right now,” Ward McCarthy, chief financial economist at Jefferies & Co., tells Bloomberg.

Editor's Note: How You Lost $85,000 During the Last Decade. See the Numbers.




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