Treasury Secretary Tim Geithner visits the Greater West Town Community Development Project, a job training center in Chicago. During the Friday visit, Secretary Geithner announced 5 billion of dollars in awards to spur private sector investment in communities facing economic challenges.
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Americans’ income and spending drop, despite stimulus
Household disposable income stagnated in September, and spending fell 0.5 percent, the government reported. The figures call into question the strength of the economic recovery.
By Mark Trumbull | Staff writer/ October 30, 2009 edition
American households cut spending and saw income stagnate in September, despite a massive government stimulus program propping up their bank accounts.
Personal disposable income decreased 0.1 percent, after adjusting for inflation, the Commerce Department reported Friday. Personal spending fell 0.5 percent, after four months of gains.
The hit to household bank accounts would have been worse without the massive federal stimulus program designed to prop up economic activity. The nation’s inflation-adjusted personal income has been sloping downward during 2009, when government transfer payments are subtracted out. But including the transfer payments – which have risen because of the stimulus efforts since February – total personal income is about where it stood early in the year.
“Households are depending on transfer payments from the government just to stay even,” economists at the investment firm Goldman Sachs wrote in an analysis of the report. “While the downward momentum [in wages] has abated, it has not turned positive. Meanwhile, income on assets – interest and dividends – continues to drop.”
The report raises questions about the strength of the economic recovery that economists believe is now beginning.
Incomes have fallen for many Americans because of unemployment, while others have seen pay raises vanish. In this tough climate, consumers remain reluctant to spend. The end of one government stimulus program – the “cash for clunkers” incentive to buy a car – contributed to the overall weakness in consumer spending.
The concern about consumers helped push stock prices down Friday in morning trading. The news also came as the Obama administration released an estimate that its $787 billion stimulus program has saved or created 650,000 jobs. Critics say the stimulus so far failed to create genuine job growth in the economy.
Many of the stimulus provisions have bolstered disposable incomes, however. Americans are paying less in taxes because of the stimulus, and they are getting more money from programs like Social Security and unemployment insurance.
“Only an increase in government transfer payments prevented an overall decline in incomes,” says economist Nigel Gault of IHS Global Insight, in a written report Friday. “Consumer spending will probably continue to grow, but at a more subdued pace” than the 2.6 percent annual rate seen from June to September.
To some extent, transfer programs naturally go up during recessions, and people naturally pay less in taxes. That’s because of programs linked to economic hardship, such as unemployment insurance, and because a recession drags down taxable income for people who lose jobs or who have stock-market investments. But the stimulus measures this year have added greatly to that typical pattern.
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Why are shoppers so lackluster? Incomes are stagnant.
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Comments
2. richard potter | 10.30.09
The economy continues to need stimulus, but we should be looking toward incentives for small business and community banks. Creating more jobs into the future needs to be a consideration for the Treasury and Federal Reserve. The slide in the dollar can help our trade deficit if managed correctly, but again we remain to dependent on foreign oil which is a large part of our trade deficit.
3. Tony | 11.01.09
Pretty soon we’ll be a bonafide third world nation. We’ll have an incredible debt burden owned by foreign countries like China. We’ll have no manufacturing base, whereas the only viable job prospects for engineers will be in the defense sector. Our public universities will be institutions dominated by elites, both intellectually and financially. Our graduate schools particularly engineering will be primarily a place to educate foreign exchange students. Our economy will revolve around the financial sector whereas the principal for economic growth will be hedge fund activities and other financial bubble creations. Our only major export will be agricultural products like grain and cotton. Soon China will cash in its Treasury notes, and demand as collateral the entire state (and bread basket of the USA) of California.
4. Toni | 11.01.09
Last year at this time we Had $1,000 a month left over to save or spend as we wished this year thanks to rising interest on bank and credit cards Im lucky to have $30 its depressing. I have found that if I wish to buy presents this holliday for my 9 grandchildren I will have to go back to work then I worry I will get nailed in higher Taxes. We are at the Lower end of what I guess some would call middel class. We are not alone in the people we know everyone is struggeling and no one we know has benifited from any of the things washington has put out there. I know this something will have to give we dont know how we could handel one more interest raise on anything. It well force us to a company to pay off credit cards or bankrupcy. Very sad we have never been unable to pay our bills but we are getting older and working 2 or 3 jobs is not a option that is if we could find them. The holliday shopping is going to show onevery big gap in what the white house is telling us and a reality of what people have to spend or the bills they wont pay so they can. Then what. The Banks with these cards will be in trouble something needs to be done right now or it will happen and I’m very worried about it. The banks and credit card companys who are making people who have never been late pay for everyone is just wrong washington knows this and they just wait while we go broke. They regulations they voted on should have been put into effect months ago. The Dems congress and senate have only there self to blame for this mess. Were they think I will get money for health care is beyond me because I dont even have the copay to go to the dr now. Sorry Im so upset I hope the trickel down of the wealth is working for someone because they have bleed me dry.
5. Numbers | 11.02.09
Falling wages are a good sign for this country. Until our wages are parallel with other countries bleeding of jobs is inevitable.
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1. John | 10.30.09
$1.2 million / job saved or created. That is some accomplishment. How many would have been saved or created if that money had remained in the private sector? How many would have been created in the U.S. if the heavy hand of government taxation and regulation had been eased instead of increased? Stealing money for redistribution by the government and the debasement of the currency by the Treasury and the FRS is not going to bring about an economic recovery, it will only delay it.