The now-ended Cash for Clunkers program helped lift consumer spending last month and is expected to deliver a bigger boost in August. But any economic rebound likely would falter if shoppers lack the income to spend more in the long run. Especially in the U.S., consumer spending is essential: It drives about 70 percent of economic activity — more than for most European nations and well above the rates in developing countries such as China.
U.S. retailers already are paying the price for flat income growth and weak consumer spending. A survey of big retail chains showed that shoppers remained tightfisted in July. That raised fears not just about back-to-school sales but also about the holiday shopping season.
"Consumers just don't have the financial firepower to go out and spend more," said Mark Zandi, chief economist at Moody's Economy.com. "Unless businesses curtail their job cuts, the recovery could very well peter out."
Americans' purchasing power has been battered by the 6.7 million jobs that have vanished since the recession began in December 2007. Companies also have cut costs by forcing workers to take unpaid days off or to work only part time.
Consumer spending edged up 0.2 percent in July, matching economists' expectations. But the flat reading on incomes was weaker than the small rise economists had expected.
"It may take consumers fully a year to get back on their feet," said Sal Guatieri, an economist at BMO Capital Markets.
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