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April 28, 2006

Gains in income and spending

N.C. State University economist Mike Walden says that two of the most important factors in the economy -- consumer income and consumer spending -– are holding up well.

“These are two numbers ... that economists track from month to month. They both have been increasing each month although the increases recently have gotten smaller,” says Dr. Walden, a professor and extension specialist in the College of Agriculture and Life Sciences.

“Now one very important indicator that economists focus on is whether spending gains outstrip income gains. This has actually been typical recently,” he adds. “It’s the cause for the very low savings rates, and it sends up kind of red flags among economists that [if] people are spending more than they are earning [then] perhaps they are living beyond their means.

“The good news is in the most recent month that we have data for income rose faster than spending, so consumers actually saved some money.

“Many economists ... think this is because of the cool down in the housing market. Consumers are realizing they can’t really rely on their home to generate their savings. They now have to do some of it out of their paycheck.”

Posted by deeshore at April 28, 2006 09:15 PM