Personal Savings Rates Grow as Economic Recovery Slows

With incomes remaining flat and employment prospects stagnant, Americans are choosing to save more money.

While that's great for their balances in checking, savings and money market accounts, it's not so great for the economy.

Consumer spending, which accounts for 70 percent of the economy, grew at a mere 1.6 percent annual pace in the second quarter, under the 1.9 percent rate in the first quarter, according to a U.S. Commerce Department report. In June 2010, spending and incomes remained flat.

Consumers' personal savings rates, meanwhile, rose to 6.2 percent in the second quarter and 6.4 percent in June, well above the 1.3 percent before the economy tanked.

Some economists say the improved savings rate could be a good thing long-term for the economy as a whole, eventually propelling an increase in consumer spending. But others attributed the savings rate improvement to stock dividend payments, which affect only the wealthier part of the population.

Economic growth slows

As a whole, the economy grew 2.4 percent in April through June, down from the 3.7 percent gross domestic product growth rate in the first quarter 2010 and the 5 percent annual pace in the fourth quarter of 2009, according to the U.S. Commerce Department.

The most encouraging news from the Commerce Department's GDP report was a 22 percent increase in business spending on equipment and software. Housing investment grew by 28 percent, but that was due to the final months of the federal home buyer tax credit.

GDP growth must be higher than what we've seen so far this year to signal true recovery, which will translate into more jobs and higher interest rates on CDs, money market and savings accounts.

Other big news from the Commerce Department was a revision of economic growth estimates in the last three years, which show the economy shrunk even more than previous estimates showed during the recession.