Disposable Income Growth Close to Standstill in U.S.

The Wall Street Journal reports that real disposable income among Americans only grew 0.7% in 2013, the weakest growth since 2009. Because of the minimization of income growth, the rise in consumer spending over the last two months of 2013 is expected to end and the supposed economic recovery will at least temporarily grind to a halt. 

Scott Brown, chief economist at financial firm Raymond James & Associates Inc., commented that the income figures “raise a degree of caution for the near-term outlook because some pullback in spending growth seems likely. We came into the year priced for a strong recovery, and now it looks like it might stumble a bit.”

The standstill for personal disposable income adds to economic jitters over emerging markets and a slowdown in the Federal Reserve’s bond-buying program.

The Commerce Department reported that in 2013, its broad measure of spending only rose 3.1% from 2012, the weakest annual increase since 2009.

With the flattening of disposable income, wage gains will be harder to come by, which will cycle back to U.S. customers’ reluctance to spend. The price index for personal consumption expenditures, by which the Fed measures inflation, only advanced 1.1% in December, far short of the Fed’s 2% inflation target. The weak inflation caused the Fed to reduce monthly bond purchases by another $10 billion.