Washington - Savings rate inches higher in May
Washington - The savings rate for U.S. households rose to the highest level in eight months in May, as incomes grew faster than spending, the Commerce Department estimated Monday.
Real (inflation-adjusted) spending increased a seasonally adjusted 0.3% in May after no gain in April, led by sizable increases in purchases of durable goods and services.
Real after-tax incomes rose 0.5% in May, compared with an upwardly revised 0.6% gain in disposable incomes in April. Compared with a year ago when tax cuts boosted household incomes, real disposable incomes are off 0.2%.
In nominal terms (not adjusted for price changes), incomes rose 0.4% in May while spending increased 0.2%. Read the full report on the Bureau of Economic Analysis website.
"Consumption has slowed only modestly" from the first-quarter's 3% pace, wrote Maury Harris, chief U.S. economist for UBS. "The building momentum in income and the increase in the saving rate pave the way for faster spending ahead."
But another economist said job growth would likely slow. "Wage growth fuels spending, but may not last," wrote Mark Vitner, senior economist for Wells Fargo Securities.
The report was mixed in terms of market expectations. Incomes rose less than the 0.5% expected, while spending was stronger than the 0.1% gain expected by economists surveyed by MarketWatch. See our complete economic calendar.
The savings rate rose to 4% from 3.8%. Households are saving three times as much out of their disposable incomes as they did just before the recession began in late 2007.
"Until people become more comfortable with their financial situations, they will continue to spend cautiously," wrote Joel Naroff of Naroff Economic Advisers. "The recovery is proceeding at a modest pace."
Consumer prices were unchanged in May, as measured by the personal consumption expenditure price index. Prices are up 1.9% compared with a year ago.
Core consumer prices -- which exclude volatile food and energy prices -- rose 0.2% in May and are up 1.3% in the past year.
The report shows Americans are slowly rebuilding their finances after the worst downturn in generations. Consumer spending is growing modestly, while inflation rates are very low.
Income from wages and salaries increased 0.5% for the second straight month after falling 3.3% in 2009.
Income from small businesses rose 0.6% after a 1.1% gain in April.
Income from assets, such as dividends and interest, rose 0.6% for the second straight month after plunging 10% in 2009.
Income from transfer payments increased 0.1% for the second straight month after rising 12% in 2009.
Personal taxes increased 0.4% after falling 0.4% in April.
Real spending on durable goods increased 1.1% after falling 0.5% in April. Spending on non-durable goods decreased 0.2% after a rising 0.1% in April. Spending on services rose 0.3%, the biggest increase since December.