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The New Economy

US savings rate soars to 14-year high

By / June 1, 2009

Cookie Ferguson (right) opened a new account earlier this year at Community Bank of the Bay in Oakland, Calif.

Tony Avelar/The Christian Science Monitor

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Americans' income rose unexpectedly in April in a sign that the Obama administration's stimulus package is finally beginning to push substantial sums of money into consumer pocketbooks.

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The income surge failed to boost consumer spending. But in a long-term plus for the economy, Americans' personal savings rate climbed to its highest level in 14 years, the Commerce Department reported Monday.

A 1.1 percent rise

Disposable personal income rose 1.1 percent, the largest increase since January. Roughly a third of that income boost came from provisions of the American Recovery and Reinvestment Act, which reduced income taxes and boosted unemployment and other social benefit payments during the month.

Absent that boost, disposable income would have grown 0.7 percent in April, the department said. The consensus among economists was that income would fall slightly in April.

The surge in income did not cause a consumer spending boom. But the 0.1 percent fall in personal consumption expenditures was slightly less than what most economists expected. Any decrease in purchases makes it more difficult for the economy to rebound, at least in the short term.

Less spending, more saving

But in a positive sign for the longer term, Americans' higher income and lower spending pushed their savings rate to 5.7 percent of disposable income. That's the highest savings rate since February 1995.

The positive data came with one caveat: The Commerce Department reduced private wages and salaries at an annual rate of $20 billion in the first three months of the year to account for smaller-than-usual bonus payments. The government didn't make a similar downward revision in April.

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