Savings Rate Hits Record Low in May
The nation’s savings rate hit another all-time low in May as Americans’ spending rose faster than their income, government data showed Monday. Economists said the figures give the Fed more reason to justify an expected interest rate increase this week.
Americans’ personal income, which includes wages, interest and government benefits, rose 0.4% in May, the Commerce Department said. Consumer spending, which has repeatedly outpaced incomes this year, rose 0.6%.
That trend has helped drag the nation’s savings rate--savings as a percentage of after-tax income--to a string of record lows this year.
In May, the savings rate fell to minus 1.2%, even worse than the previous record of minus 1.0% in March and April.
The nation’s economy grew at a brisk annual rate of 4.3% in the first three months of this year--powered by strong consumer spending. Consumer confidence, meanwhile, is at a record high.
Even though economists believe both economic growth and consumer spending slowed in the current second quarter, they don’t believe it is enough to dissuade the Federal Reserve from beginning to raise short-term interest rates at its meetings today and Wednesday.
Many economists expect the Fed to raise its target for the federal funds rate, the interest that banks charge one another, from 4.75% to 5% in an effort to slow the economy and keep inflation under control. And that could be followed by one and possibly two more quarter-point increases in upcoming months, many analysts believe.
The 0.6% increase in spending in May followed gains of 0.5% in April, 0.6% in March, 0.9% in February and 0.5% in January.
Spending on durable goods--big-ticket items expected to last at least three years--rose 2.2% in May after two months of declines. Spending on nondurable goods such as food and fuel increased 0.5%, and spending on services rose 0.3% in May.
Americans are enjoying the lowest unemployment rate in 29 years and high demand for labor, helping to boost wages. In May, wages rose 0.5%, following a 0.6% increase the previous month. However, wages for farm proprietors dropped 13.8%.
Economists believe that one major reason the savings rate is so low is because the stock market is at record highs, boosting Americans’ net worth and making them feel more comfortable about spending.
Last year, 25% of American households’ total assets were in stock market investments--the highest percentage in the postwar period, said economist Paul Kasriel of Northern Trust Co. in Chicago.
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Personal Spending
Seasonally adjusted annual rate, in trillions of dollars:
May: $6.16 trillion
Source: Commerce Department
