Even with More Disposable Income, Households Choose to Save
Saving by consumers was up in June, despite an increase in disposable income. Personal income remained unchanged in June, and real disposable income income rose 0.2%, according to data today from the US Department of Commerce. Real personal consumption expenditures rose 0.1% in June -- and at a 1.6% annual rate in the second quarter. But the personal savings rate rose to 6.4% of disposable personal income in June from 6.3% in May. According to the Federal Reserve Bank of Cleveland, nominal personal income was up negligibly in June (0.02%) following a 0.3% gain in May: The Cleveland Fed said the 12-month growth rate in personal income now stands at 2.6 percent, below the recent high in March of 3.0 percent. After adjusting for price effects, "real" personal income rose 0.2 percent in June after a 0.4 percent increase in May "Employment in private industry is growing at a modest pace, and this growth is helping to raise incomes among American families," said Rebecca Blank, the under secretary for economic affairs at the Commerce Department. "Healthy consumer spending goes hand-in-hand with income and job growth, and the administration remains focused on boosting employment to ensure every American who wants a job can get one." The less-than-0.1% monthly decline in personal income comes on the heels of a 0.4% increase in April and a 0.3% increase in May. Overall in Q210, personal income grew at "a fairly decent clip," according to analysis by Capital Economics US economist Paul Dales. Additionally, he sad, real disposable incomes rose at an annualized rate of 8%. "By and large, households decided to save, rather than spend, this extra income," Dales said. "Revisions to past data mean that the saving rate is now much higher than previously thought, and it rose from 6.3% in May to 6.4% in June. That's the highest since 1993." Although this savings rate will likely further dampen near-term spending and demand for goods and services, it also positions US households to increase spending and/or pay down debt in the long-term. Write to Diana Golobay.