Dennis' Mortgage Blog

Figures for Personal income and Personal spending for the month of February 2011 were released today.  Despite low expectations, consumers failed to meet the consensus on how much they would spend.

Personal income rose only 0.3% for the month, after increasing 1.2% in January.  More importantly than the increase in Personal income, which measures gross, pre-tax income, is the real disposable income.

Disposable income is the income you have left after paying taxes.  In February disposable income fell, so while you made more you took home less. This is due to the expiration of the "Making Work Pay" tax credit many Americans received as part of the almost $800 billion American Recovery and Reinvestment Act of 2009, aka "the Stimulus Bill".

Personal spending increased only 0.7% in February from January, largely because of higher prices for food and energy.  Take away food and energy and spending rase 0.3%.  With consumer spending making up approximately 70% of our economy numbers like this make economic recovery challenging.

Annualizing the spending numbers and the projections for economic growth in the 1st Quarter of 2011 annualize to only 1.75 - 2.00%.  If this is our annual growth expect job growth to be stagnant as well.

These numbers reflect support for low interest rates, or possibly even lower, as they do not support robust, or even modest, economic growth.  The challenge we are looking at is the low growth with rapidly rising food and energy costs.  If the trend continues look for consumer spending on non-food and non-energy items to decline in coming months.

Until consumers start showing the money to merchants our economy will continue sluggish growth and risk of falling back into recession.  Pecuniary conservatism has grown in America as a result of lessons learned from pre-recession habits and fears of, or actual, job or income loss.  The double-edged sword is that smart spending and savings habits put more money in savings and cash than in cash registers, this increases the likeliness our full economic recovery being pushed further into the future. 

If every American spent an extra $10 at a local merchant or restaurant per month that would add about $38 billion to private businesses across the country. That could kick start recovery.

Go buy some new socks or underwear, show the local merchant the money!

Mortgage rates continue to remain low for the time being.  Call or email Dennis today to determine your purchasing power for a new home loan or monthly savings from a refinance.  Direct dial 562-472-1118