Consumer spending up in June

If Americans continue reaching into their pocketbooks, back-to-school sales could be better than expected.

It looks like consumers are finally getting out of their funk and starting to spend some money.

The latest statistical evidence of this: Consumers increased their spending in June by 0.4 percent, after a 0.1 percent increase in May, the Commerce Department reported Tuesday.

Any improvement in consumer spending is welcome since it represents about two-thirds of US economic activity.

“This is encouraging for the economy,” says David Wyss, chief economist at Standard & Poor’s in New York. “We are spending again.”

Economists are now waiting for the crucial July employment report, which is released Friday. “It should show that the job cuts are slowing but we still have a long way to go before businesses start adding workers again,” writes Joel Naroff of Naroff Economic Advisors in a report.

The spending numbers in June were slightly better than economists’ expectations. But if the figures are adjusted for inflation, consumer spending fell 0.1 percent in the month, some analysts pointed out.

If consumers continue reaching into their pocketbooks, back-to-school sales could be better than expected. “I’m feeling a little better about back-to-school,” Mr. Wyss says.

However, in an indication of persisting difficulties, retail sales decreased 0.2 percent for the week ending Aug. 1, the International Council of Shopping Centers (ICSC) and Goldman Sachs reported Tuesday. On a year-over-year basis, sales were down 0.7 percent.

When the government puts together the report for July retail sales, it may show the bumpy nature of recovery. Last month, many retailers marked down items to entice consumers. Moreover, cooler- and wetter-than-normal weather in the Northeast may have kept consumers from heading to the malls or making impulse purchases.

“ICSC Research continues to expect industry sales for July to be off about 5.5 percent with leaner clearance than last year hurting the reported sales pace,” chief economist Michael Niemira said in a statement.

Despite the better spending numbers in June, there are still lots of signs that consumers are economically distressed. For example, on Tuesday, SurePayroll, which processes many small-business payrolls, reported in a monthly survey that small-business salaries had dropped 5.1 percent on a year-to-date basis.

According to the SurePayroll survey, the average small-business annual paycheck is $29,995, down from $32,290 a year ago. This is the first time the average paycheck has been under $30,000 since March 2006.

The SurePayroll numbers mesh with Commerce numbers issued on Tuesday, which showed that personal income fell 1.3 percent in June after rising the same amount in May. The May numbers were boosted by one-time payments from the Obama economic stimulus program.

In another indication of consumer angst, the Gallup Organization’s recent surveys have yet to show any pickup in consumer confidence, reports Dennis Jacobe, chief economist in Washington. “On day-to-day spending, we just continue to see a flat line,” he says.

Mr. Jacobe doubts that consumer spending will show substantial improvement until the job market improves. In addition, he says, consumers have started to pay more at the gas pump in recent weeks.

“At this point, consumers are watching their spending carefully,” he says.

One of the brightest spots in consumer spending is car sales, spurred on by the "Cash for Clunkers" program. Pressure is mounting on the Senate this week to extend the program, which is rapidly running out of the $1 billion authorized by Congress.

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