Wednesday, September 1, 2010
Consumers spent more even though their incomes grew less quickly
US consumer spending rose by a faster-than-expected 0.4% in July, as shoppers saved less of what they earned.
It was the fastest growth rate since March, though total spending remains well below its pre-recession highs.
Personal income however grew only 0.2%. Economists had expected both numbers to rise by 0.3%.
Wall Street was underwhelmed by the data, with the Dow Jones dropping some 38 points (0.4%) in early trading, before bouncing back slightly. Investors appeared to be waiting for regional manufacturing due later, which may give further evidence of a slowdown in industrial production.
Saving versus spending
The spending data means that the savings rate in the US - the percentage of income that households choose not to spend - fell slightly to 5.9% from 6.2% in June.
Before the global recession, the US savings rate was close to zero, meaning that households spent nearly all they earned. It rose during the recession however, resulting in a big fall in consumer spending.
Many economists expect the savings rate to remain at 6% or rise even further. Historically, the savings rate has been even higher - at 8%-12%.