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According to a new government report, households that had been socking away a fraction of 1 percent of their disposable income earlier in the year are now putting away nothing. That's right: Zero. Nada. A giant goose egg.
The personal savings rate—defined as what's left from one's income after taxes and spending—fell to 0 percent in June, down from a revised 0.4 percent in May, the Commerce Department's Bureau of Economic Analysis reported this morning. This marks the lowest household savings rate on record since the terrorist attacks of Sept. 11, 2001.
Ironically, the bad news on savings came in the same month in which personal incomes rose a relatively robust 0.5 percent compared with May. Personal disposable income—defined as after-tax take-home pay—also jumped 0.5 percent. So it's not that workers are making less than they did at the start of the year. They're simply spending more.
Indeed, June witnessed a renewed surge in consumer spending, which increased by a larger-than-expected 0.8 percent compared with the same period a year earlier. That marked the biggest monthly increase in consumer expenditures in about a year.
Americans spent more, in part, to buy vehicles. Major incentive campaigns by the Big Three automakers resulted in a strong month for auto sales. All three automakers extended employee discounts to all buyers.
To be sure, some economists believe the Commerce Department's savings rate does not adequately measure total household savings, as it does not reflect investment gains generated by real-estate holdings and stock portfolios. Still, as recently as 2001, the savings rate stood as high as 3.4 percent. And in the early 1990s, it climbed as high as 7.9 percent.
