Americans choose to save, not spend, in June

@CNNMoney August 2, 2011: 10:46 AM ET

NEW YORK (CNNMoney) -- Americans earned a little bit more income in June, but they chose to stash it away rather than spend it.

Personal spending fell 0.2% during the month, according to data released Tuesday by the Commerce Department.

It marked the biggest monthly decline in consumer spending since September 2009 and fell short of economists' forecasts for a slight increase of 0.1%.

"It's consistent with this flat spot we're seeing in the economy," said Paul Ballew, chief economist at Nationwide. "Consumers retrenched underneath all the pressures between rising gas prices and continued housing challenges."

Meanwhile, personal income rose 0.1% in June.

Consumers chose to hold on to the extra cash, pushing up the personal savings rate. Savings as a percentage of disposable income rose to 5.4% from 5.0% in May. Americans saved a total of $620.6 billion during June, compared with $581.7 billion the prior month.

Economy grinds to halt as consumers pull back

The report comes at the end of a decent corporate earnings season. Companies have been reporting strong profits, as they increase their productivity and grow their overseas operations. They're still not hiring much at home though.

The recovery seems to be faced with a chicken-and-egg dilemma. Companies don't want to hire significantly until they're convinced domestic demand for their products and services will pick up. But at the same time, consumers won't ramp up their spending until they have jobs.

"The recovery in employment is going to take a while -- businesses are still focused on the bottom line, and without top-line growth, they're not going to hire," Ballew said.

The Commerce Department's monthly data comes just days after it released a report showing the economy grew just 1.3% in the second quarter and 0.4% during the first quarter, as consumer spending barely picked up. To top of page

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