Consumer Spending Up, Along With Savings

Washington, DC, June 26, 2009--The Commerce Department said Friday that consumer spending rose 0.3 percent in May, in line with expectations, although the savings rate moved even higher.

However, 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 $787 billion economic stimulus program.

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 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.

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.