06/2011 Consumer Spending (US Department of Commerce)

Commerce Department said today that consumer spending dropped 0.2% in June for the first time in nearly two years as incomes barely rose, suggesting economic growth could remain subdued in the 3Q11. Economists expected spending to increase, which accounts for about 70% of U.S. GDP, to rise 0.2%.

The growth potential for the economy has slowed significantly, as consumer spending is hampered by a 9.2% unemployment rate and the labor market's health could very well determine how fast the economy recovers. Budget cuts in Washington could also hamper the economy's recovery, although most of the fiscal restraint imposed by a plan the Senate will vote on Tuesday won't take hold for years.

After 07 – 09 depression, we are starting to see a sign that consumer spending behavior is gradually changing.

1. The decline in spending in June came even as gasoline prices retreated from their peak just above $4 a gallon in early May. Oil price is like an index for staple goods, such as toilet paper, so this data suggests people are hesitant to purchase extra goods when some money is left in the pocket after purchasing necessary goods.
2. With real disposable income outpacing spending, savings rose to $620.6 Bn from $581.7 Bn in May. People are starting to be more concerned about the future, saving up some cash for rainy day.

But there was some silver lining in the general weak report, which showed overall inflation pressures subsiding a bit.