New consumer spending data show Wisconsin lagging neighbors in recovery from recession

Wisconsin's sluggish recovery from the Great Recession was reflected Thursday in new figures that show growth in consumer spending has lagged behind neighboring states and the nation as a whole.

Consumer spending also is growing slower than personal income, which economists said could be signs that consumers feel less than optimistic about the future and may be trying to pay down debt.

Wisconsin consumers spent $34,721 per person in 2012, a 2.5 percent increase from the year before, the U.S. Commerce Department said in its first state-by-state breakdown of consumer spending. Nationally, consumer spending grew 3.3 percent during that time, and in the Great Lakes region, it rose 3.5 percent.

It's no surprise that consumer spending has grown more slowly in Wisconsin than elsewhere because personal income has been increasing more slowly, said Kundan Kishor, an economist at the University of Wisconsin-Milwaukee.

"Consumer spending is determined by the current income and what you expect income to be in the future, and if you are not optimistic about what's going to happen in the future, it will affect your consumption decisions," Kishor said.

Wisconsin residents' personal income grew 3.9 percent from 2011 to 2012, while it increased by 4.2 percent nationally and 4.6 percent in Minnesota.

The state has struggled with lingering unemployment after losing 133,000 private sector jobs as the recession took hold during former Democratic Gov. Jim Doyle's second term. Those losses have not entirely been made up by the 100,000 jobs it has gained under Republican Gov. Scott Walker.

Consumer spending also likely was affected by cuts in state spending and government jobs under Walker, along with a stagnant housing market, Kishor said.

Housing prices affect consumer spending because homeowners see increases as relatively stable and permanent signs of growing wealth. When home prices fall, as they have in the Milwaukee area, consumers see that as a more permanent loss than a dip in the stock market, Kishor explained. Lower home prices can also reduce consumers' ability to get home equity lines of credit, which he said are often spent mainly on durable goods, such as cars.

Lower government spending reduces demand for goods and services and can add to unemployment, said Steven Durlauf, a University of Wisconsin-Madison economist. He and Kishor said tax cuts that Walker pushed to put more money into residents' pockets likely wouldn't offset the impact of budget cuts.

"If I purchase something from you, I affect your income," Kishor said. "But if I stop purchasing, you are going to lose your income, and then you are going to spend less. This is how the whole economy is dependent on each other."

Walker spokeswoman Laurel Patrick said spending cuts enacted under the governor were needed to address a $3.6 billion deficit. She also said the Commerce Department's figures run only through 2012, and Walker's first tax cut went into effect after that.

"People across the state tell him one of the best ways to fuel the economic recovery is to reduce their tax burden," Patrick said in an email. "That's what Governor Walker has done, to the tune of more than $2 billion in tax relief since he took office."

Wisconsin's slower recovery also reflects long-term issues in the state economy, including a loss of manufacturing jobs and a significant portion of college graduates who leave to seek work in other states, the economists said. Wisconsin came out of the recession in a weaker position than other states because it went in that way, Kishor said.

The gap in increases in personal income and consumer spending could be a sign that consumers still feel anxious about the future, Durlauf said. But he also said it likely indicates that consumers are paying down debt, such as credit card bills or loans taken out during the recession.