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As Personal Incomes Stagnate, Americans Are Dipping Into Their Savings

By Aviva Shen

"As Personal Incomes Stagnate, Americans Are Dipping Into Their Savings"

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Consumer spending is up this holiday season, but personal incomes are still flailing, according to November spending data released Monday morning. Consumer spending rose by .5 percent, as economists predicted, but personal income levels fell short of expectations, rising .2 percent after dropping slightly in October. The new numbers suggest that Americans are dipping into their savings to finance end-of-year purchases.

As personal incomes essentially flatlined, consumers invested in more long-lasting durable goods, such as cars, but cut back on fewer everyday items. As a result, personal savings dropped .2 percent from October.

“The weaker tone in consumer income suggests that despite recent improvement in labor market activity, incomes have thus far failed to rebound substantially, leaving consumers dependent on savings to finance the recent pickup in spending activity – a largely unsustainable trend,” Gennadiy Goldberg, a strategist at TD Securities, warned.

Though economic growth has picked up this year, the benefits have yet to trickle down to the average worker. From July to September, the economy grew at the best rate in two years and surpassed 4 percent for the first time since the recession. However, much of that growth was driven by businesses building up their inventories ahead of the holiday shopping season, while employment levels and incomes stayed below healthy levels.

Businesses have enjoyed large gains as the stock market, corporate profits, and worker productivity have all reached record highs since the recession, while labor costs are down. But wages have barely moved, shrinking workers’ share of the economy to the lowest level in years. Without stronger wage gains, consumer spending may well decline, which could endanger the strong economic growth currently predicted for the new year.

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