Americans earning more, but saving less than ever

By JEANNINE AVERSA

Associated Press

WASHINGTON – Americans’ incomes rose solidly in August but their spending went up faster, pulling the nation’s personal savings rate down to a record monthly low.

The Commerce Department reported today that personal income, which includes wages, interest and government benefits, grew by 0.4 percent last month, slightly faster than the 0.3 percent rise many analysts were anticipating.

At the same time, spending rose by a brisk 0.6 percent, a little more than the 0.5 gain analysts were expecting.

On Wall Street, much of the big stock gains registered Thursday evaporated in the first hour of trading today. The Dow Jones industrial average was off 88 points and the Nasdaq index dropped 63 points.

In July, Americans’ incomes grew by 0.3 percent but their spending rose twice as fast, by 0.6 percent.

Disposable income – what is left after taxes – rose in August for the second straight month by 0.3 percent.

All that spending drove down the personal savings rate – savings as a percentage of after-tax income – to a negative 0.4 percent in August, an all-time monthly low since such record keeping began in 1959. July’s savings rate was revised upward from a negative 0.2 percent to zero.

Still, August’s rate may not provide a clear picture of savings, economists have said. That’s because the calculation doesn’t take into account gains realized from such things as rising stocks and higher real-estate values.

The Federal Reserve has boosted interest rates six times over the last 15 months to slow economic growth and keep inflation under control. The Fed’s rate increases are designed to make borrowing more expensive and cool demand for such big-ticket items as cars and homes.

Given signs of moderating growth, economists believe the Fed won’t boost interest rates at its meeting next week or for the rest of this year.

Today’s report showed that spending on durable goods – cars and other costly manufactured goods expected to last at least three years – grew by 1.6 percent in August, the fastest pace since a 1.7 percent increase in February. In July, spending on durable goods rose 0.7 percent.

Spending on nondurable goods, such as food and fuel, rose 0.2 percent in August, down from a 0.7 percent rise the month before.

Americans’ wages grew by a modest 0.3 percent in August, following a solid 0.5 percent rise in July.

Total income growth last month was dampened in part by the departure of temporary federal government census workers. Analysts also expected sluggish job growth in August to temper income growth for the month.