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U.S. Consumers Cut Spending; First Decline In Nearly Two Years

Filed by KOSU News in Business.
August 3, 2011

Americans put more of their money into savings in June, at the expense of consumer spending — and that came as a surprise to analysts. The month’s drop in spending was the first in nearly two years (20 months).

The new Commerce Department numbers are being attributed to concerns over a weak job market and low housing prices. Others say they’re the result of a slight dip in energy and food costs that had risen earlier this year. But the spending decline casts more doubt on a slow U.S. recovery — about 70 percent of America’s economy is driven by consumer spending.

For Newscast, Yuki Noguchi filed this report:

Incomes rose slightly, but consumers cut way back on spending. Concerns about job insecurity and other economic factors prompted them to save at a rate of nearly five and a half percent — the highest rates in a year. Economists had been expecting a slight increase in consumer spending.

Because so much of the economy is driven by consumer spending, the fear is that stalled demand could stall the economy overall. Household debt is high and housing prices are low, leaving consumers with little cash reserve to spend. Recent data on the country’s GDP seemed to underscore that dynamic; growth during the first half of the year was very slow.

Anyone looking for the silver lining in all of this can take solace in the idea that saving money is often a good thing. “Personal saving as a percentage of disposable personal income was 5.4 percent in June,” according to the Commerce Department report, “compared with 5.0 percent in May.”

For a broader view of the savings rate — and to see how it has sunk from the 1950s, when it was closer to 10 percent — the Bureau of Economic Analysis has a chart for that. [Copyright 2011 National Public Radio]

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