Consumer spending accounts for over 70 percent of economic activity in the
United States. Which makes it rather worrisome when we hear reports that
for the first time in over a year, Americans have stopped spending. This
does not bode well for the future health of the U.S. economy.
According to the Commerce Department, consumer spending failed to budge
from April to May and when adjusted for inflation consumer spending
actually declined by 0.1 percent. It was the worst reading since September
Commerce Department Chief Economist, Mark Doms, attributed the decline to a
drop in motor vehicle purchases caused by supply disruptions from the
tsunami in Japan.
Gas prices averaging over $4 a gallon certainly did not help the cause in
May. Increases in oil prices have forced many consumers to scale back on
discretionary purchases, such as furniture and vacations.
The report comes only days ahead of the highly anticipated July 8th
unemployment report for June. In May, the U.S. economy fell well below