US Consumer spending up

WASHINGTON – HOUSEHOLDS 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 programme was devoted more to bolstering nest eggs than increased spending.

CONSUMER spending is closely watched because it accounts for about 70 per cent of total economic activity. Economists are hoping that improved spending will help support a rebound in economic activity.

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

The savings rate, which was hovering near zero in early 2008, surged to 6.9 per cent, 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 programme 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. Those factors helped increase after-tax incomes 1.6 per cent in May. However, without the special factors, after-tax incomes would have risen just 0.2 per cent.

The savings rate, which is a percentage of disposable income, rose to 6.9 per cent from 5.6 per cent in April. Last month’s savings rate was far above recent annual rates, which dipped below 1 per cent 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 per cent rise in spending in May was viewed as encouraging after no change in April and a 0.3 per cent drop in March. April had originally been reported as a drop of 0.1 per cent.

It was the best monthly performance since spending rose by 0.4 per cent in February. — AP