Americans' Savings Rates Grow Faster Than Spending

Personal income and spending rose slightly in May, a sign the weak economy is limping toward recovery, while personal savings rates hit their highest level in eight months.

American consumers spent $24.4 billion more in May than in April, a 0.2% increase, while their income rose by $53.7 billion, or 0.4% over the previous month, the US Commerce Department said.

"Solid gains in personal income and consumer spending in May are consistent with continued economic growth," Commerce Department chief economist Mark Doms said in a statement announcing the newest numbers. "The most recent figures on production, hours, income, and spending all demonstrate that the economic recovery remains on track."

Although the economy has grown the last three quarters, the gains have been modest. May's consumer spending increase followed a less than 0.1% bump in April, and quarterly consumer spending increases haven't been as strong as those in the recovery following previous recessions.

Stronger Growth Needed for Increase in Bank Rates

Economists keep a close eye on consumer spending because it makes up about 70% of the US economy. Another key factor in the recovery--job growth--has also been tepid. The economy added 431,000 jobs in April, but most of them were temporary Census Bureau positions. Until factors like job growth and spending heat up, interest rates on CDs, savings accounts, money market accounts, and other deposit accounts will remain low.

Meanwhile, personal savings rates in May rose to 4%, the highest level since September 2009 and up slightly from April's 3.8%. The boost in savings as well as the slim gain in spending show Americans remain cautious about the economy.