The American consumer's thriftiness, adopted after the 2008 economic meltdown, appears to be wearing thin, according to the latest numbers from the Commerce Department.
The government's index of spending and income shows spending rose for the sixth straight month, rising 0.6 percent in March. Income also rose in March, but not as fast.
"The key point is that household spending can only be supported if we get better income growth," said Joel Naroff, chief economist at Naroff Economic Advisors, in Holland, Pa.. "This is going to take lasting job gains."
On Friday the Labor Department releases the April employment report and Naroff expects to see some slight gains in jobs. But he suggests that much of the anticipated gains may be coming from firms that are infilling jobs that should have been filled over the past six months. By compressing the payroll increases into a shorter period of time, he says, it makes them look stronger than is supportable over the rest of the year.
While consumers are spending more over the last few month, which is helping the economy recover, Naroff is concerned that the trend can't be sustained.
"Since income growth fell short of the shopping spree so, to pay for everything people had to use up some of their savings," Naroff said. "That led to another decline in the savings rate."
A couple of other factors are creating headwind for the economy. Despite their increased spending, Naroff says consumer confidence remains low. An expected rise in the unemployment rate could dampen confidence further.
At the same time, consumers are spending more because some prices have gone up. When you break down the personal consumption figures, prices are up around two percent. But energy and food costs are up a staggering 18.7 percent since March 2009. While many other prices remain stable, food and energy make up large portions of the typical consumers' budget.
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