U.S. Incomes Rise in August; Savings Hit Low

Americans saw their incomes grow in August and spent all of it and more, which drove down the nation’s savings rate to the lowest point on record. Despite the strong jump in consumer spending, analysts were still betting the Federal Reserve will leave interest rates unchanged next week.

Americans “obviously still subscribe to the philosophy ‘if you got it, spend it,’ ” said economist Joel Naroff of Naroff Economic Advisors.

Americans’ incomes, which includes wages, interest and government benefits, grew by a solid 0.4% last month on top of a 0.3% gain in July, the Commerce Department said Friday.

But spending rose faster. For the second straight month, Americans went on a buying binge, increasing their spending by a brisk 0.6% in both July and August.

Consumer spending, which accounts for two-thirds of all economic activity, has been an engine of the economy’s remarkable growth.

“The demise of the consumer, which has been forecast all this year, has yet to show up in these numbers,” observed Michael Niemira, economist with Bank of Tokyo-Mitsubishi.

Economists believe that the economy, which grew by a solid 5.6% annual rate in the second quarter, slowed to a rate of around 3% to 3.5% in the July-September quarter.

With Friday’s figures, analysts believe that consumer spending will be stronger in the third quarter, increasing at a rate of 4% or more, compared with the second quarter’s 3.1% pace, the slowest in three years.

But that expected pickup in consumer spending was likely blunted by other forces, thus leading to a moderation in third-quarter economic growth, analysts said.

Given that scenario, the Federal Reserve, which has raised interest rates six times since June 1999 to slow growth to a more sustainable pace, is expected to stand pat when its meets Tuesday.

All that spending in August drove down the personal savings rate--savings as a percentage of after-tax income--to a negative 0.4%, an all-time monthly low since such record-keeping began in 1959. July’s savings rate was revised upward from a negative 0.2% to zero.

The savings rate measures only the amount of money being put aside each month for savings.