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Savings slip as Americans return to spending

November 11, 2011

| Money Rates Columnist

While Commerce Department figures report that consumers put less into their savings accounts and spent more in September, there are signs this mini-surge in spending may not last.

Consumer spending rose 0.6 percent in September while income increased only 0.1 percent, meaning if you factor in inflation, income actually fell for the third straight month.

The stagnant income growth suggests that the trend of increased spending will eventually bottom out alongside consumers' savings accounts. And with interest rates remaining at historic lows, it's unclear when the trend of declining saving rates will end.

According to the Associated Press, the savings rate fell to 3.6 percent in September, the lowest savings rate since December 2007. Since the Great Recession took hold, Americans have generally cut back on spending in an effort to pay down debts and put money into savings accounts. But that trend stalled at the beginning of summer.

One explanation for this belongs with low current interest rates. But spending has also been driven by higher prices on health care, electricity and gas, the Wall Street Journal reported.

September's spending surge, coupled with a significant spending jump over the summer, helped the economy – but not enough. As AP noted, the economy would have to grow twice as fast in order to reduce the nation's unemployment rate, which is stubbornly stuck at 9 percent.

Still, consumer spending accounts for 70 percent of the nation's economic activity, so any bump is seen as significant. But with consumer confidence remaining low and more Americans are forsaking saving for spending, it's unlikely this blip spells economic recovery.

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15 November 2011 at 8:35 am

The Fed's record low interest rate policy is doing as Bernanke intended, stop people from saving money and spend every last dime they have. That will boost corporate profits. If you believe in the "trickle-down myth", this will create product demand, induce hiring and produce jobs. In reality, it will just produce more people unable to retire and dependent on aid to the poor.

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