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Income, spending higher
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May 28, 1999: 12:22 p.m. ET
April saving rate drops to minus 0.7%, matching record low
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NEW YORK (CNNfn) - Americans' incomes rose in April but they kept spending at a rapid pace, the government reported Friday, keeping the nation's savings rate stuck at an all-time low.
U.S. personal income rose a seasonally adjusted 0.5 percent in April while personal spending climbed 0.4 percent, the Commerce Department reported Friday. Both results were roughly in line with analysts' expectations.
But while earnings rose faster than spending, taxes, interest payments and other expenditures helped push the nation's savings rate to minus 0.7 percent in April -- matching the record lows set in February and March -- as consumers dipped into their savings to satisfy their growing desire for goods and services.
Analysts sounded a cautious tone concerning the report, noting the U.S. economy was decelerating in line with expectations, likely staving off a Fed interest rate hike for now. However, analysts said the negative savings rate potentially could cause some long-term problems should the economy or markets turn sour.
"It highlights the imbalances that [Federal Reserve Chairman Alan] Greenspan has talked about the last several months," said Harvinder Kalirai, an economist with IDEA Global.com. "If it doesn't correct on its own by, say, the Fed taking the steam out of the bubble, you could have a violent correction and a market crash, and that could be a serious risk to the economy."
"Remember, personal savings is only a small portion of total national savings," said Bruce Bartlett, an economist with the National Center for Policy Analysis. "Corporations are still saving a great deal and the federal government is running a very large budget surplus which adds to national savings.
"So I think we shouldn't be overly concerned about the decline in personal saving at this particular moment and time, but it's something we certainly need to keep an eye on."
U.S. markets reacted mostly positively to the latest economic news, which also included a slightly less strong acceleration in the Chicago Purchasing Management Index for May. The Dow Jones industrial average was up 106.60 to 10,573.53 in mid-morning trading while the bellwether 30-year treasury bond was up 5/32 of a point in price, for a yield of 5.80 percent.
Analysts expect the Federal Reserve to hold off on a possible tightening of interest rates for now, but some action is expected by summer's end.
"We think the Fed is going to tighten by the end of August," Kalirai of IDEA said, suggesting the Fed could ultimately reverse its 75-basis point rate decrease from last fall by the end of the year.
Service spending leads the way
Overall, personal income rose 0.5 percent, or more than $45 billion, to $7.41 trillion in April, slightly above both analysts' predictions of a 0.4 percent gain and the 0.3 percent increase posted during March.
The gain came as private sector wages and salaries jumped $22.6 billion, compared with a more modest rise of $5.5 billion in March. More than half that increase came in the service industry, where wages grew $14.8 billion compared with an $8 billion gain in March.
Personal spending rose nearly as fast, however, climbing 0.4 percent to $6.11 trillion. That matched analysts' expectations, and was just below a revised 0.5 percent gain during March.
The largest increase in spending likewise was concentrated in the service industry, as spending on services rose 0.7 percent in April to $3.59 trillion, matching a similar percentage gain during March.
Spending on non-durable goods such as food and clothing climbed 0.4 percent to $1.75 trillion, while durable goods spending on items like furniture and cars fell 0.8 percent to $770.5 billion.
That resulted in consumers dipping into their savings at an annualized rate of $43.7 billion.
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Commerce Department
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