Rising Prices Stifle Stimulus Impact

By Martin Crutsinger

The Associated Press

WASHINGTON – Rising prices, falling home values, stagnant wages and tight credit – it’s a potent combination that has struck the American consumer hard.

In June, the second biggest rise in prices in nearly three decades muted the impact of billions of dollars in government stimulus payments, government figures showed Monday.

Incomes barely budged in June and consumer spending retreated after taking into account the higher prices for food, energy and other items, the Commerce Department data show.

It’s forcing Americans like Kathy Stanley, of rural Franklin County west of St. Louis, to decide every day what they can and cannot afford, even for staples.

Stanley said Monday that rising gasoline prices had eaten into her budget so drastically that she and her husband have eliminated almost all their discretionary spending.

She said she spent only about one-third what she normally does on her daughter’s back-to-school clothes and has even cut back on staple items as food prices have jumped this year.

“I had to cut back on milk,” she said. “We just drink more water.”

Consumer spending was up 0.8 percent in May and 0.6 percent in June, the Commerce Department said. Those increases were slashed to a modest 0.3 percent increase in May and a drop of 0.2 percent in June, however, when adjusted for rising prices of gasoline, food and other products. Incomes rose just 0.1 percent.

An inflation gauge tied to consumer spending jumped by 0.8 percent in June. That was the second biggest monthly increase since 1981. In September 2005, the gauge rose by 1 percent after Hurricane Katrina shut down Gulf Coast oil facilities and sent energy prices soaring.

Economists said the surge in energy and food prices had dampened the impact of the government’s economic stimulus program which was pumping out $76 billion in payments during May and June as Washington sought to keep the economy from falling into a deep recession.

“You’ve got declining home prices, very tight credit conditions, a soft jobs market and a weak stock market. The consumer has got a lot to deal with,” said David Jones, chief economist at DMJ Advisors, a Denver-based consulting firm.

Consumers do seem to be getting one break. Oil prices, already down more than $20 from their highs hit in early July, dipped briefly below $120 in trading Monday, the first time that has occurred since May.

In other news, JetBlue Airways Corp. said Monday it is now charging customers for pillows and blankets.

The carrier has done away with the recycled blankets and pillows used on its flights, and has started offering an “eco-friendly” travel blanket and pillow that can be purchased for $7 on flights longer than two hours. The pair come in a kit with a $5 coupon to home furnishings retailer Bed Bath & Beyond.

The blanket and pillow kit is the latest in a string of a la carte items the company says are providing a revenue boost to help offset the soaring price of jet fuel.

(c) 2008 San Gabriel Valley Tribune. Provided by ProQuest Information and Learning. All rights Reserved.