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Consumer Cavalry Rides to the Rescue

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Around about four weeks ago, I was skimming the government's April income and spending report, noting the sizeable jump in consumers' income and how it created almost no response at the cash register. I attributed this state of affairs to the previous month's overspending (see below), but I clambered out on a limb to predict "another big bump -- and perhaps more than one -- in the income column over the next few months." I further predicted that newly flush Census workers would "run right out and spend their paychecks" in May.

Was that the right call? You be the judge:

From where I sit, at least, this does seem to be the way things have played out. For the third month in a row, U.S. consumers, as a group, found their wallets noticeably fatter than they had been in the previous month. For the second month in three, they reacted to this happy development by upping their spending.

Yet there's something surprising here, too. For the second time in a row, American incomes and spending rose -- with the latter lagging the former. According to the Commerce Department's Bureau of Economic Analysis, personal savings throughout the nation rose to 4% of annual income last month. That's surprising when you consider how very stingy the bankers at Citigroup (NYSE: C  ) and Bank of America (NYSE: BAC  ) have become with the interest they pay on such savings. The folks at the Federal Reserve are lending them money at nearly 0% rates, you see, fueling an amazing rebound in profits -- but giving the bankers little reason to pay more for access to depositors' money.

Americans' surprising reluctance to spend with abandon is sending tremors down the corporate spines at retailers from American Eagle (NYSE: AEO  ) all the way up to Wal-Mart (NYSE: WMT  ) . Yet I see a ray of hope in consumers' measured return to the stores. Could it be that consumers will do their part to revive the economy, but do so prudently, and without ruining their own finances in the process this time?

Let's hope so. And let's make sure to check in when our next major retailer, Family Dollar (NYSE: FDO  ) , gives its update on spending trends next week.

That's my take on BEA's latest facts and figures. But what do you think? Take the Foolish Rorschach test, and tell us what you see in the chart up above, down below.

Wal-Mart is a Motley Fool Inside Value pick, but Fool contributor Rich Smith owns no shares of any company named above. The Motley Fool has a disclosure policy.


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Rich Smith
TMFDitty

Rich started out life as an international lawyer working in Moscow, Kiev, and Washington, D.C. Having made his fortune there, Rich retired to rural Indiana to put his experience into practice -- investing and writing for other investors. A contributing writer for the Motley Fool, he makes occasional appearances on Sirius XM Radio and NPR, and has been published on such varied sites as Yahoo! Finance, Creditcardchaser.com, Slickdeals.net, and AOL’s DailyFinance.

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