With U.S. personal spending increasing at a much faster rate than personal income in the month of February, the Commerce Department released a report on Friday showing a notable drop in the personal savings rate for the month.
The report showed that personal spending rose by 0.8 percent in February following an upwardly revised 0.4 percent increase in January. Economists had expected spending to increase by 0.6 percent compared to the 0.2 percent growth that had been reported for the previous month.
Real spending, which is adjusted to remove price changes, increased by 0.5 percent in February compared with a 0.2 percent increase in January.
The increase in spending was due in large part to a 1.6 percent jump in spending on durable goods, although spending on non-durable goods and services also increased.
Meanwhile, personal income edged up by 0.2 percent in February, matching the downwardly revised increase seen in the previous month. Personal income had been expected to increase by 0.4 percent.
Disposable personal income, or personal income less personal current taxes, also rose by 0.2 percent in February after coming in nearly unchanged in January.
As a result of the much bigger increase in spending, personal saving as a percentage of disposable income tumbled to 3.7 percent in February from 4.3 percent in January. With the drop, the savings rate fell to its lowest level since August of 2009.
Noting that the increase in disposable income is barely above the rate of inflation, Peter Boockvar, managing director at Miller Tabak, said, "Consumers are being left little choice but to tap into savings to maintain spending levels."
"Anemic interest rates are of course also a discouragement to saving money," he added.
The Commerce Department also noted that its reading on core consumer prices, which exclude food and energy prices, was up 1.9 percent year-over-year in February. The annual rate of price growth is unchanged from the two previous months.
by RTT Staff Writer
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