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Shrinking Paychecks Impact Consumer Spending

Apparel & Footwear Lead Nondurables but Lag Overall Spending Pace

Personal income fell in March, according to recently released US Department of Commerce data. Americans are tempering both their spending and saving activity as taxes take a fatter chunk of paychecks and the probability of a near-term economic recovery appears slimmer.

Spending on apparel and footwear was stable, however, helped by the continued surplus of discounts and other deals that resonate with value-conscious consumers.

Personal disposable (after-tax) income increased by 2.0%, its second smallest monthly gain in more than three years. Total personal income before taxes increased by 2.5%, an indication of how significant the payroll and income tax increases have been.

Total personal consumption expenditures grew by 3.2% in March, virtually even with gains of the last two months, and well below the 5% monthly jumps seen in the first half of 2011.

Much of the increase was due to an uptick in durables spending, which jumped 5.4% on a rise in auto spending. Many Americans have been forced to replace aging vehicles, and small business demand has fueled a spike in SUV and small truck sales.

Personal savings were $329 billion in March. The personal savings rate stands at about 2.7% of disposable income, well below 2012’s average monthly level of over 4%. Although consumers have stopped deleveraging, or paying down debt, they haven’t increased their use of plastic: monthly increases in credit card debt have been running between one-half and one percent for the past several months.

Although growth in consumption of apparel and footwear has been declining over the past few months, and now lags overall spending growth, it’s relatively healthy compared to overall nondurables, where spending was flat in March.

Apparel expenditures rose by 3.2% on a 12-month smoothed basis in March, its smallest monthly increase in almost three years. Spending on footwear, a category that has enjoyed tremendous visibility over the past several months, also appears to be slowing, and now lags apparel spending on a 12-month smoothed basis.

Women’s apparel spending growth was 3.7% in March, edging ahead of both men’s and children’s in the month.



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