September Personal Savings Rate Lowest Since December 2007

Sluggish growth in U.S. consumer income in September led households to cut back on saving to increase their spending, casting doubts over the durability of the economy's third-quarter growth spurt.

The Commerce Department said on Friday consumer spending increased 0.6 percent, matching expectations, after a 0.2 percent gain in August. Consumer spending accounts for about 70 percent of U.S. economic activity.

With income edging up 0.1 percent last month, spending was at the expense of saving, which dropped to an annual rate of $419.8 billion, the lowest level since August 2009, from $479.1 billion in August.

The saving rate, the percentage of disposable income socked away, fell to 3.6 percent, the slowest since December 2007, from 4.1 percent in August.

Income fell 0.1 percent in August and economists had expected a 0.3 percent increase in September.

"Very weak income, but very solid consumption even though consumer confidence is in recession. So that's good news for the economy," said Kurt Karl, chief U.S. economist at Swiss Re in New York. "(But) it's hard to sustain without more income growth."

A separate report from the Labor Department showed wages and salaries expanded 0.3 percent in the third quarter -- the smallest rise in a year -- after gaining 0.4 percent pace in the prior quarter.

U.S. Treasuries prices held steady at higher levels after the data. Stock index futures were lower after a big rally on Thursday, while the euro extended a decline against the dollar.

In September, inflation-adjusted disposable income slipped 0.1 percent, declining for a third straight month.

Sturdy consumer spending contributed to gross domestic product growing at a 2.5 percent annual pace in the third quarter, the fastest rate in a year, after an anemic 1.3 percent rate in the second quarter. Much of the spending data was included in Thursday's GDP report.

But given that income is not driving spending, the economy could lose some of its new found momentum. Consumer spending grew at a 2.4 percent pace in the last quarter, the fastest in nearly a year.

Stubbornly high unemployment, characterized by a jobless rate that has been stuck above 9 percent for five consecutive months, is restraining income growth. Last month, wages and salaries rose 0.3 percent after dipping 0.1 percent in August.

But subsiding inflation pressures should offer households some relief. A price index for personal spending rose at a 0.2 percent rate last month, slowing from August's 0.3 percent pace. In the 12 months through September, the PCE index was up 2.9 percent after rising by the same margin in August.

A core inflation measure, which strips out food and energy costs, was flat last month after increasing 0.2 percent in August. In the 12 months through September, core PCE rose 1.6 percent after increasing 1.7 percent in August.

The Federal Reserve would like this measure close to 2 percent.

(Reporting by Lucia Mutikani and Jason Lange; Editing by Neil Stempleman)

Copyright 2011 Thomson Reuters. Click for Restrictions.

Comments

[jefe]

05:26 AM on 10/31/2011

Income? What's that?

[Jody Dobis]

10:31 PM on 10/30/2011

If we ever get back to a pre 2008 economy, I hope that everyone that bought into the privatization of government services in the past do not make the same mistake twice. High on the list of privatization that is all about smoke and mirrors is the replacement of Social Security and Medicare. How can the business media be surprised by the drop in savings when a typical middle class worker is more worried about keeping their heads above water on just the basic costs of health care, food, fuel and housing? Not much is left over to invest.

[xrepublican]

10:12 PM on 10/30/2011

Well..... considering that you're getting just about NOTHING in interest on savings, are losing money on Wall Street and are faced with a REAL inflation rate of at least 7% it seems like you're better off spending instead of saving....... I also can't help but wonder if people aren't maxing out on credit - figuring that they're going bust and bankrupt anyway..... better get what you can while you can.......

Note: One of the triggers to hyperinflation is people losing faith in the soundness and purchasing power of their nation's currency. When they come to the realization that they are LOSING purchasing power by holding onto money, they start spending it. As money loses value to inflation, the velocity of money increases (the rate art which it moves and is spent) so the rate of inflation increases even more.

[loki]

10:11 PM on 10/30/2011

how can anyone save. Prices rising at the time of recession and many out of work or under paid for the work they do. Yes, some are overpaid, but the CEOs and super rich feel its their god given right to be vastly over paid for doing nothing.
At a time when if you can save, most of the banks hit you with so many fees and charges you cant save, and like I said before, prices are rising faster than at any recession in the past. Which usually in recession, prices dropped. Not this one though, the avarice rich wont even take a break when millions are suffering, they want it all, and they dont care who suffers for them to get more of it. the avarice rich are like crack addicts, but the problem is, they never seem to be able to OD on to much money. Which is a shame really.

[dansup]

01:28 PM on 10/30/2011

hard to believe that we're turning our backs on the massive 1/2% interest rate we can get on our savings

[loki]

10:12 PM on 10/30/2011

your right, and with all the fees and charges that go along with that rate, every month you can end up owing the banks $20 on every $100 of your money you put in their bank. Now who wouldnt love to get a deal like that? at least thats the way the banks put it.

[parrotfish]

11:13 PM on 10/29/2011

If our incomes have stagnated or vanished (due to unemployment) and we pay more for everything just to survive then there is not much to save at the end of the month. So next obvious article.

[Jody Dobis]

10:43 PM on 10/30/2011

Were has the media been over the last 10 to 20 years? Judging the health of the working class can not be measured by the Dow Jones average or any other common financial metric. Based on this article, it is clear that a large portion of the business media is as out of touch and a couple of income brackets above the working class in this country. As with the depression of 1929, I hope that when the working class get's out from under this recession that they pledge never to believe the financial BS of future corporate leadership. The concentration of present wealth for the top 1% didn't happen by accident or brilliant capitalists. It occurred as a result of the working class being asleep at the switch and too many federal political individuals and groups being on the dole of corporations.

[Eagleman]

08:23 PM on 10/29/2011

Hope and Change ? looking for spare change ?

[Amanda Matthews]

02:18 PM on 10/29/2011

This is just one of those DUH moments in life where you have to go find a mirror and look yourself in the eye and just say "GO FIGURE".

[bynddrvn5]

02:05 PM on 10/29/2011

So if regular Joe/Jane investors are pulling their money out of the market then would it be safe to assume that they are also missing the latest surge in the stock market?

If this is the case, it means even more money for the top percent who do not need the money right now and less for those who need to pull the money out to make ends meet.

[Chase Chevalier]

01:41 PM on 10/29/2011

I know I might be in the minority but almost all of the assets I have been accumulating over the past few years are ones that are within the visibility of the Govt. For good reason of course but I just wonder how they calculate their numbers?

[FOXYROSE]

11:39 AM on 10/29/2011

How do they expect people to save when their incomes have remained stagnant and everything else has gone up through the years!

[Chase Chevalier]

01:42 PM on 10/29/2011

Not to mention Govt active spending more and more of our money. If they print more dollars to pay for their irresponsible spending doesn't that deflate our dollars that we do have saved?

[FOXYROSE]

05:52 PM on 10/29/2011

Yes, the U.S. dollar is only worth about 70 cents - then they wonder why people can't get ahead.

[nothingchanges]

10:30 AM on 10/29/2011

Simple math...............

When 1% of the population controls most of the money, the law of averages kicks in.

[Chase Chevalier]

01:43 PM on 10/29/2011

If that were there case then the number would look better than they do. Since in all the other media reports the rich are getting richer and the middle class and below never did save but just spent on credit.

[Peter Combs]

01:36 AM on 10/29/2011

So savings rates have dropped to 3.6%.....and Obamacare is suppose to kick in in a couple years. The Median US income for a family is $55,000...the minimal premium for Health Insurance will run around $4,500 to $6,000 a year AFTER Federal Tax Credits..74% of all Amrican households earn un $75,000 a year...

SO if the cost of Obama Care is around $5,300 on average...how are people going to cover it with their 3.6% that might have been put in savings? Its about half the Premium

[Rteefact]

01:27 AM on 10/29/2011

The interest rates are so low its easier to put the money in a pillow. I have several accounts one is with one of the risky bank stack and that is the only one turning that anything reasonable.

[1oldhippie]

12:17 AM on 10/29/2011

Savings? What the hell is that? When the economy has you living hand to mouth, through no fault of your own, you can't even save your dignity!