NEWS AND COMMENTARY
August 28, 2000
U.S. Savings Rate at Record Low
By Peronet Despeignes, Financial Times
Consumers Dip into Savings, Leaving Little to Cushion Inflation ... Weiss comments
WASHINGTON - U.S. consumer spending outpaced income in July and ran at the fastest pace since February, driving the savings rate to its lowest level on record, according to figures released by the Commerce Department on Monday.
The Commerce Department said personal spending jumped 0.6% to $6,661.2 billion, while income rose only 0.3% to $8,285.1 billion. The gain in spending was up from June's 0.4%.
The rise in spending was the largest since February's 1.2% increase and helped to drive the savings rate to -0.2%, the lowest level since monthly records began in 1959.
The savings rate represents after-tax income that is not spent, but does not account for the appreciation of equities, homes and other assets. The monthly data, which is adjusted for seasonal changes but not inflation, were revised back to the month of April.
Undoubtedly, individuals living paycheck to paycheck are more vulnerable to inflation than those who have built a nest egg. Clearly, with the savings rate dropping into negative territory, U.S. households are not holding onto their gains from the past few boon years. As household savings disappear, it becomes more and more difficult for consumers to keep up with rising prices. When the escalating price of oil filters down to the gas pump and other household goods, a lack of savings to cushion the impact could very well undermine the Fed's attempt at a soft landing.
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