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Consumer Spending, Saving, Both Rise

Future trend may indicate higher savings

By Mark Huffman
ConsumerAffairs.com

June 26, 2009

The Commerce Department reports personal income rose at a seasonally adjusted rate of 1.4% compared to April. Consumer spending was up 0.3 percent.

Personal saving as a percentage of disposable personal income was 6.9 percent in May, up from 5.6 percent in April and 4.3 percent in March. The savings rate was the largest since December 1993.

Economists say a return to spending is a good sign for the economy.

"I have argued for months that it would be the consumer who would lead the way out of this mess and that is starting to happen," said Joel Naroff, chief economist at Naroff Economic Advisors, in Holland, Pa.

Naroff attributed the big rise in the savings rate to the fact that the stimulus checks went mostly to seniors receiving Social Security. They are the group most likely to save and the least likely to spend, he said.

The May report may prove to be typical in the months ahead, a reflection of new attitudes about the economy. Spending may rise slowly while the savings rate remains significantly higher than in the recent past.

"Over the past two decades, consumers had used the boom in stocks in the 90s and the surge in home prices this decade to supplement their income," Naroff said. "When they spent that wealth, it was counted as consumption but not as income. That gave us the below two percent savings rate over the last ten years. Without another bubble to drive up wealth, spending will grow more moderately and the savings rate will be higher. I call this the back to the future consumer."

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