Consumer spending stagnated in April as workers kept a tighter grip on their wallets and sought to rebuild their savings.
Savings increased to 3.6 per cent as a percentage of disposable income in April, after falling for the previous two months, according to a report from the commerce department on Friday. The jump from 3.1 per cent in March was the biggest since August 2009, leaving savings at their highest level since January.
The increase in savings was boosted by personal income, which rose 0.4 per cent, slightly less than expected, but in line with March’s gain. Spending was flat in the month, compared with expectations of another 0.2 per cent gain in April and following a 0.6 per cent jump in March.
“[The] piggy bank gets used again,” wrote Alan Ruskin at RBS Global Banking & Markets. “A fair vision of the data is that the February and March data was flattered by the decline in the savings ratio, [a decline] that ultimately could not be sustained, especially while wealth is again under pressure from a choppy stock market. The data should fit with the consumer acting with far less ebullience than past recoveries.”
Consumer sentiment, which can dampen spending, was slightly less depressed in May than it had been in April, but remains below its February and March levels, separate data in the Reuters/University of Michigan survey showed on Friday. The consumer sentiment index rose 1.1 points to 73.3 in mid-May, compared with 73.6 in the previous two months.
“While off the lows that were recorded when panic and paralysis were the order of the day [in 2008 and early 2009], this measure of consumer sentiment nonetheless remains severely depressed,” wrote Joshua Shapiro, economist at MFR. “This is hardly surprising in view of all the headwinds facing the consumer, most of which are likely to persist for some time.”
Economists and Federal Reserve governors have expressed concern that lower personal savings could hinder the recovery. The minutes from the last Federal Open Market Committee meeting said that, due to the low personal saving rate, “it seemed unlikely that consumer spending would be the major factor driving growth as the recovery progressed”.
The savings rate remains well below its historic levels. In the 1990s, personal savings averaged over 5 per cent of disposable income. But during the boom years, personal savings dropped dramatically, in some months not even reaching 1 per cent.
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