Fearful Americans save more as recovery slows
Americans are saving more and spending less, putting a choker on the economic recovery, data showed Tuesday, as the US government warned sky-high unemployment may yet worsen.
The mighty American consumer — whose thirst for new products has for decades been a mainstay of the global economy — has trimmed spending as salaries have stagnated and more cash is saved, according to the latest Commerce Department figures.
In June Americans saved 6.4 percent of their income on average, the highest savings levels in a year.
“The savings rate rose for the forth month in a row and reached 6.4 percent, which is relatively high for the ‘old-style’ American consumer,” said Natixis economist Thomas Julien.
The Commerce Department’s figures also showed consumer spending decreased by 2.9 billion — less than 0.1 percent — while income increased by roughly the same amount.
“Consumers are pulling back,” said IHS Global Insight economist Chris Christopher.
Consumer spending is a key driver of US economic growth, usually accounting for two-thirds of output.
The US authorities have been torn between encouraging US consumers to spend more to speed the recovery, and avoiding a return to unsustainable debt levels that preceded the crisis.
But Americans, still spooked by the financial crisis and the weak labor market, appear to have made their choice.
Analysts warned that spending would have decreased further but for an increase in energy bills linked to warmer-than-normal temperatures.
Other figures released Tuesday showed consumer spending slowing on some big ticket items.
The National Association of Realtors reported pending home sales fell 2.6 percent in June, to its lowest level in nearly a decade and down 19 percent from this time last year.
The decrease followed May’s sharp 30 percent decline on the expiration of a government homebuyer tax credit, and was worse than expected by analysts.
“Consumers are seemingly holding off on making new purchases until the employment situation stabilizes,” said Jeffrey Rosen of Briefing.com.
But even Treasury Secretary Timothy Geithner on Tuesday warned that day may come later rather than sooner.
Geithner warned Americans Tuesday that the country’s already sky-high unemployment rate could yet worsen.
In an interview with ABC, Geithner admitted that “it is possible you’re going to have a couple of months when it goes up,” as out-of-work Americans see the economy recovering and try to return to the labor force.
“When they see a little hope that there may be jobs out there, they start to come back in again. And that can cause the measured unemployment rate to go up — temporarily.”
But Geithner insisted that the economy is “gradually healing” and that President Barack Obama’s administration is doing all it can to aid that recovery.
All eyes will now turn to the latest unemployment statistics, which will come on Friday, with analysts expecting the unemployment rate to rise to 9.6 percent, from the current rate of 9.5 percent.