Consumption Doesn’t Matter. Income Does.


The BEA reports that consumer spending increased sharply in March. Business owners are pleased:

Consumer spending rose in March at the fastest pace in nearly five years, providing fresh evidence that the U.S. economy gained strength with the arrival of spring. Personal consumption—spending on everything from electricity to sliced bread—surged a seasonally adjusted 0.9% from February, the Commerce Department said Thursday. That was its largest gain since August 2009.

….Paint sales are up from a year ago at Koopman Lumber Inc., a Whitinsville, Mass.-based chain of six hardware and lumber stores. “People are starting to spend some money on their houses. They’re saying, ‘We’ve put it off long enough,’ ” co-owner Tony Brookhouse said. “There are definitely signs of improvement.”

Maybe. But look: consumers can only spend money they have, and the only way for consumer spending to rise steadily is for personal incomes to rise steadily too. But that’s not happening. Here’s the chart since the beginning of the recovery:

There’s a small uptick in February and March, but it’s nothing special. A few months from now, if we’re still seeing a sustained increase in personal income, then we should expect a sustained increase in personal consumption too. But without that, this is just a bit of catch-up spending due to low levels in the previous few months.

Don’t pay attention to consumption. Pay attention to income. That’s what matters. A sustained recovery won’t be based on drawing down savings or cash-out refis or running up the credit card. It will be based on steadily rising incomes. So far we haven’t seen that.

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DEMOCRACY DOES NOT EXIST...

without free and fair elections, a vigorous free press, and engaged citizens to reclaim power from those who abuse it.

In this election year unlike any other—against a backdrop of a pandemic, an economic crisis, racial reckoning, and so much daily crazy—Mother Jones' journalism is driven by one simple question: Will America move closer to, or further from, justice and equity in the years to come?

If you're able to, please join us in this mission with a donation today. Our reporting right now is focused on voting rights and election security, corruption, disinformation, racial and gender equity, and the climate crisis. We can’t do it without the support of readers like you, and we need to give it everything we've got between now and November. Thank you.

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