As Americans used the biggest gain in income in three months to boost savings, reports show consumer spending during June in the U.S. has reached a stalemate.
Seventy Percent of the economy derives from household purchases. According to a Commerce Department report showed today in Washington, however this market was left unchanged after a 0.1 percent decrease the prior month.
The lack of available jobs is causing Americans to cut back spending substantially. These cutbacks are forcing retailers to have prolonged sales on their products. The length of the sales is becoming damaging to company profits.
Federal Reserve policy makers meet today and tomorrow to determine whether more monetary stimulus is needed to shore up an economy that has been slowing for two straight quarters due to consumers saving.
"We have a consumer that's obviously a lot weaker," said Eric Green, global head of foreign exchange, rates and commodities at TD Securities in New York. "The labor market is not really strong."
Today's reports showed that adjusting consumer spending for inflation, which concentrates the figures used to calculate gross domestic product, purchases dropped 0.1 percent, the most since August, after a 0.1 percent increase in the previous month.
Automobile spending was unchanged after a 0.4 percent drop. Purchases of non-tangible goods, which include gasoline, fell 0.4 percent; however spending on services was unchanged.
The saving rate increased from 4 percent. Wages and salaries climbed 0.5 percent after a 0.1 percent gain.
The money left over after taxes, better known as disposable income, increased 0.3 percent after adjusting for inflation. It rose 0.5 percent in the prior month.
Retailer facts and figures are showing weakness and loss. Sales have continued to decline in June for a third straight month, the longest period of decline since 2008.
Unemployment continues to hold at 8.2 percent for a third month. The rate has exceeded 8 percent for more than three years.
Despite the poor economic outlook, some companies are holding up better. Cheesecake Factory Inc. (CAKE), which runs casual dining restaurants, projected annual per- share earnings that exceeded analysts' forecasts and said second- quarter revenue got a boost from more customer visits.
Guest counts "are still growing for our concept," Chief Financial Officer Douglas Benn said on a July 25 conference call with analysts. "I don't see that much difference in the macro environment that's causing me concern. I think it has been and continues to be and probably will continue to be for a while a very sluggish and slow recovery."
Only time will tell as to when the economy will begin to stampede back into a positive recovery, however now, Americans are content on saving rather than spending.