U.S. Savings Rate at Highest Point in 15 Years By JACK HEALY
Published: June 26, 2009 Tax cuts from the stimulus package and increases on Social Security checks lifted personal incomes sharply in May, the government reported on Friday, but it appeared that many people were putting that money away instead of spending it.
Although personal spending increased slightly last month, the saving rate climbed to its highest level in 15 years as consumers tried to build a buffer against the threat of job losses and more economic hardships.
The personal saving rate, which dipped below zero during the housing boom as Americans tapped home-equity loans and other easy lines of credit, rose to 6.9 percent in May, the Commerce Department reported. That was its highest point since December 1993.
On Wall Street, investors saw little reason to cheer the increases in incomes or spending, and stocks fell moderately in late-morning trading, unraveling some of the gains from a day earlier. Stocks are poised to close lower for a second week, offering more fodder to bearish investors who believe that this spring’s stock rally has largely run its course.
At 11 a.m., the Dow Jones industrial average was down 66 points, or 0.8 percent, while the wider Standard & Poor’s 500-stock index was 0.7 percent lower. Smaller losses in technology stocks helped to stem losses on the Nasdaq index, which was off 0.3 percent.
As personal savings return to their historically normal levels, the increase triggers what economists call the “paradox of thrift.”
Although saving money helps individuals repair their finances and pay debts, a sharp rise in overall personal saving can actually deepen a recession and hurt the people who are saving more. As people save money, fewer dollars circulate through shopping malls, Main Street businesses, large employers and back to workers through their paychecks, pulling the economy lower.
Economists say the recent spike in personal saving was likely to fall back slightly as the effects of government stimulus fade, but they have said that Americans are becoming thriftier and are not likely to return to the spendthrift patterns that fueled much of the growth of the last nine years.
