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US households save the cash meant to stimulate spending

HOUSEHOLDS in the United States pushed their savings rate to the highest level in more than 15 years in May as a big boost in incomes from the government's stimulus program was devoted more to bolstering nest eggs than increased spending.

The Commerce Department said yesterday that consumer spending rose 0.3 percent in May, in line with expectations. But incomes jumped 1.4 percent, the biggest gain in a year and easily outpacing the 0.3 percent increase that economists expected.

The savings rate, which was hovering near zero in early 2008, surged to 6.9 percent, the highest level since December 1993.

The income increase reflected temporary factors related to the US$787 billion economic stimulus program that President Barack Obama pushed through Congress in February to fight the recession. That program included one-time payments to people receiving Social Security and other government pension benefits.

The stimulus package also featured reductions in payroll tax withholding designed to get people to start spending more money and boost the economy.

After-tax incomes

Those factors helped increase after-tax incomes 1.6 percent in May. However, without the special factors, after-tax incomes would have risen just 0.2 percent.

The savings rate, which is a percentage of disposable income, rose to 6.9 percent from 5.6 percent in April. Last month's savings rate was far above recent annual rates, which dipped below 1 percent from 2005 through 2007 as a booming economy and soaring home prices pushed Americans to spend most of what they earned.

Those factors have been reversed amid the longest recession since World War II. Triggered by a housing bust, the downturn has depressed home prices by the largest amounts since the Great Depression.

Economists believe that a rise in personal savings rate is a good development in the long run, but they worry that it could make the rebound from the recession slower than it otherwise would have been.

However, the 0.3 percent rise in spending in May was viewed as encouraging after no change in April and a 0.3 percent drop in March. April had originally been reported as a drop of 0.1 percent.




 

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