Personal Savings Rate Increases In September As Spending Falls

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With consumers saving more as a result of economic uncertainty, the Commerce Department released a report on Friday showing that personal spending decreased in September, while personal income came in nearly unchanged.

The report showed that personal spending fell by 0.5 percent in September following an upwardly revised 1.4 percent increase in August. The moderate pullback in personal spending came in line with the expectations of economists.

The drop in spending was partly due to the end of the government's cash for clunkers program, which contributed to a notable increase in auto sales in August.

Additionally, the Commerce Department said that personal income decreased by less than 0.1 percent in September after edging up by a revised 0.1 percent in the previous month. Economists had expected income to be unchanged.

Disposable personal income, or personal income excluding personal current taxes, also fell less than 0.1 percent in September after edging up by 0.1 percent in August.

With spending falling and income nearly unchanged, personal saving as a percentage of disposable personal income was 3.3 percent in September compared to 2.8 percent in August.

Peter Boockvar, equity strategist for Miller Tabak, noted that the savings rate has seen a notable upward since bottoming at 0.8 percent in April of 2005, but it remains well below its 30-year average of 5.7 percent.

"The transition of depending more on savings and less on credit and the wealth effect of asset prices is a healthy but long term process," Boockvar said. "The ideal way for the economy though of raising the Savings Rate is to rely more on income growth and less on spending cuts."

The Commerce Department also said that its reading on core consumer prices, which exclude food and energy prices, rose at an annual rate of 1.3 percent in September, unchanged from the previous month.

Boockvar said, "Today's September data was captured in yesterday's third quarter GDP report, but we can at least see how the quarter ended in terms of spending."

With consumers saving more as a result of economic uncertainty, the Commerce Department released a report on Friday showing that personal spending decreased in September, while personal income came in nearly unchanged. The report showed that personal spending fell by 0.5 percent in September following an upwardly revised 1.4 percent increase in August. The moderate pullback in personal spending came in line with the expectations of economists. (Market News Provided by RTTNews)