U.S. Savings Rate Near a Low Point
Trend Is Making It Harder
For the Nation to Reduce
Burden of Huge Trade Gap
By GREG IP
Staff Reporter of THE WALL STREET JOURNAL
December 2, 2004
The U.S. personal savings rate fell to its second-lowest level on record in October, a development that makes it harder for the U.S. to shrink its huge trade deficit -- a gap that is putting downward pressure on the dollar.
The drop in savings came as personal consumption and income growth remained brisk, and other reports showed continued optimism among manufacturers and blue-chip companies for the months ahead.
Households saved 0.2% of their disposable income in October, down from 0.3% in September, the Commerce Department said yesterday. It was the lowest rate recorded since the U.S. government began compiling savings data in 1959, with the exception of October 2001, when statistical quirks related to the prior month's terrorist attacks produced a small negative savings rate.
Drew Matus, an economist at Lehman Brothers, said the savings rate implies someone with take-home pay of $40,000 a year is on average saving $1.50 a week. "Given the propensity of U.S. consumers to want to buy imported goods, we could see a worsening of the savings rate and current-account deficit," he said, adding that it will take some time for the weaker dollar and higher interest rates to change that.
The latest drop in savings came as consumer spending rose faster than income. Personal consumption rose 0.7% in October from September, an acceleration from September's 0.6% gain. Spending on nondurable goods jumped 1.5%, likely reflecting much higher prices for gasoline. Indeed, adjusted for inflation, consumer spending only rose 0.3% in October, a deceleration from September's 0.5% gain.
Personal income rose 0.6%, a pickup from a 0.2% gain in September when hurricanes disrupted workplaces and chopped pay checks. After taxes, disposable income also rose 0.6%.
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