American consumers opened their wallets and pocketbooks a bit more in June, increasing their spending for the second straight month while saving a bit less, even as incomes fell sharply.
Consumer spending is closely watched because it accounts for about 70% of total economic activity. The increase could provide a lift to the economy, but may be hard to sustain if incomes continue to fall.
The U.S. Commerce Department said today that consumers boosted their spending 0.4% in June, slightly ahead of analysts’ estimates. That comes after spending rose 0.1% in May.
Personal income fell 1.3% after rising by the same amount in May, when incomes were boosted by one-time payments from the Obama administration’s stimulus package. Economists expected personal incomes, the fuel for future spending, to fall 1%.
Amid the longest recession since the Second World War, the personal savings rate has surged as Americans seek to rebuild their nest eggs after home values and stock portfolios plummeted last year. While saving can be good in the long run, rapid increases in saving can slow the economy.
The department said the personal savings rate fell to 4.6% in June, after jumping to 6.2% in May, which was the highest since February 1995. The rate dropped as low as 1% at times last year.
The department also revised its spending and income data back to 1929, as it did last week when it reported second-quarter gross domestic product, the broadest measure of the economy’s output. The changes show that Americans saved slightly more than previously thought.
For example, the department revised the savings rate in 2008 to 2.7% from 1.8%.
The U.S. government reported last week that the overall economy, as measured by the GDP, shrank at an annual rate of 1% in the second quarter, far less severe than the 6.4% decline in the first quarter and a 5.4 per cent decline in the fourth quarter of 2008.
