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Personal savings rate climbs to 1-year high

By Hibah Yousuf, staff reporter


NEW YORK (CNNMoney.com) -- Americans saved a slightly larger chunk of their disposable income for a third straight month in June, pushing the personal savings rate to its highest level in a year, according to government data released Tuesday.

The Commerce Department reported that personal savings totaled $725.9 billion, or 6.4% of post-tax income, up from $713.9 billion, or 6.3%, in May. The rate was the highest since June 2009, when the reading came in at 6.7%.

"The rebound in the savings rate is encouraging," said Mark Vitner, senior economist at Wells Fargo. "It means that spending is likely to rise more in line with income whenever it grows."

In addition to lifting spending, a higher savings rate also means that households have a better cushion to pay down debt.

The report showed that personal income and spending were virtually unchanged during the month.

Income increased by $3 billion, or less than 0.1%, after a downwardly revised 0.3% rise in May. Economists surveyed by Briefing.com expected the figure to edge up 0.1% during the month.

Spending by individuals, a key driver of economic growth, rose $5.1 billion June, or less than 0.1%, in line with economists' estimates.

"This report definitely comes in on the weaker side, and is another indication that the economic recovery is losing momentum," Vitner said.

He added that the gap in unemployment benefits may have cut into spending activity during the month. Though August might show a boost in spending since Congress extended jobless benefits last month, Vitner said hanging hopes for the economy on unemployment checks isn't healthy.

Vitner added that he expects the private sector to grow over the next year, even as stimulus funds wind down, which will help boost personal income and spending in the future.

"The economy will have to start standing on its own. That might make for weak headline numbers, but from a fundamental standpoint, we'll start to see a more genuine recovery," he said.

Meanwhile, the core personal consumption expenditures index, a closely watched gauge for inflation that excludes food and energy, increased less than 0.1% in June, following a 0.1% increase in May.  To top of page

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