Economic recovery falls to thrifty consumers

August 4, 2010 at 12:00a.m.

Associated Press

WASHINGTON

American shoppers are being careful about how much they spend, and that’s making businesses cautious about hiring.

For the economic recovery to gain strength — and the unemployment rate to come down in any meaningful way — consumers will need to become less frugal. But a flurry of data released Tuesday suggests families are reluctant to increase their spending, even as they buy more stuff, including cars and consumer staples such as razors and shampoo.

“Once the unemployment rate starts coming down in a significant way, consumers will feel more confident and start spending. But businesses are reluctant to step up hiring until they see stronger demand,” said Chris G. Christopher, senior economist at IHS Global Insight. “It’s a Catch-22 situation.”

Unemployment stands at 9.5 percent. The government’s next jobs report comes out Friday.

Most major automakers on Tuesday posted higher U.S. sales for July, a sign that Americans are still willing to buy big-ticket items. And Procter & Gamble, maker of Tide laundry soap and Pampers diapers, said its revenue grew 5 percent in the latest quarter.

But other industry and government data were more downbeat.

Factory orders dropped in June for the second- consecutive month after nine-straight months of gains, the Commerce Department said. And the number of buyers who signed contracts to purchase homes fell in June to the lowest level on records dating back to 2001, according to the National Association of Realtors.

One telling detail about consumers’ habits these days came from the Commerce Deptartment’s personal income and spending report for June: the annualized savings rate stood at 6.4 percent, the highest level in nearly a year — and triple the rate in 2007, before the recession.