Americans have rebuilt their savings to the highest level in a year amid growing uncertainty about the strength of the economic recovery as government stimulus programmes phase out.
The Commerce Department reported on Tuesday that the personal savings rate, the amount of each paycheck that goes unspent jumped to 6.4 per cent in June, the highest rate since June 2009. That’s a far cry from the heady days of the spending boom when Americans set aside less than 1 per cent of paychecks.
The savings came despite stagnant wage income growth in June after several months of gains that were spurred by the government’s hiring of temporary Census workers. But as national count winds down, government payrolls fell at an annual rate of $3.4 billion in June, compared to a $5.7 billion increase last month.
The lackluster data are “symptomatic of an economy that has not yet made the transition to a self-sustaining recovery,” said Stuart Hoffman, chief economist for PNC Financial Services Group.
The report was weaker than many economists had expected. Spending was flat in June as consumers continue to grapple with high unemployment. Shoppers have also been reluctant to take on new debt to fund their spending, which had fuelled previous shopping sprees. The amount of outstanding revolving credit, which primarily consists of credit cards charges, dropped at an annualised rate of 10.5 per cent in May to $831 billion.
Consumer demand had been supported in the first half by government stimulus programmes such as “cash for appliances” and a tax credit for homebuyers. But as those initiatives fade, so does consumers’ appetite for spending.
Consumers weren’t the only ones who put the brakes on spending in June. Government data showed that orders for manufactured goods fell 1.2 per cent to $406 billion in June, a double whammy following a 1.8 per cent decrease in May. “The manufacturing downshift is under way, however, it shouldn’t be taken as a signal of widespread weakening,” said Aaron Smith, senior economist at Moody’s.