WASHINGTON – The national savings rate declined last month as federal stimulus payments slowed to a trickle, dragging down disposable personal income nationwide, the U.S. Commerce Department’s Bureau of Economic Analysis said today. The decline outpaced the dip in personal spending, which fell despite higher food and energy prices prices.
Total personal consumption expenditures (PCE) nationwide rose $24.1 billion, or 0.2 percent, slowing from increases of 0.6 percent in June and 0.8 percent in May, the BEA found. The July increase matched the median forecast from a Bloomberg News survey of 75 economists. (Their projections for the PCE ranged from an increase of 0.8 percent to a decline of 0.1 percent.)
Despite higher prices, however, real personal spending nationwide – PCE adjusted for inflation – shrank 0.4 percent last month after shrinking 0.1 percent in June. Over the past year, personal consumption spending has risen an average of 0.1 percent per month.
“Inflation has been eating into spending power,” Nigel Gault, chief U.S. economist at Global Insight Inc. in Lexington, Mass., told Bloomberg News.
The PCE price index – a measure of prices paid by U.S. consumers – rose 0.6 percent in July, slowing from June’s 0.7-percent gain but remaining ahead of the past year’s 0.4-percent-per-month average. The month-over-month increase was the sharpest in 17 years, Bloomberg News data show. Higher prices for food and energy accounted for half last month’s increase; the core index excluding food and energy rose 0.3 percent, the same as the month before.
U.S. personal incomes shrank by $89.9 billion, or 0.7 percent, after growing 0.1 percent in June and 1.8 percent in May, in what Bloomberg called the first decline since August 2005. But the dip was artificial, the BEA wrote: “The difference reflects rebates provided by the Economic Stimulus Act of 2008,” the bureau said in a statement. “Excluding the rebates, personal income grew 0.5 percent in July, after increasing 0.3 percent in June. Over the past year, personal income has grown at an average rate of 0.3 percent per month.
Wages and salaries – the largest component of personal income – increased $13.2 billion in July after growing $7.9 billion in June, the BEA said. Disposable personal income (DPI) shrank by $114.7 billion, or 1.1 percent, after falling 1.9 percent in June and rising 5.7 percent in May.
Real DPI – disposable personal income adjusted for inflation – shrank by 0.7 percent in July, after growing 0.1 percent in June. But, the bureau said, “excluding rebates real DPI decreased 0.1 percent in July after decreasing 0.4 percent in June.” Over the past 12 months, the nation’s real DPI has grown at an average rate of 0.1 percent.
The nation’s personal savings rate fell to 1.2 percent last month from 2.5 percent in June. Total personal savings in July – DPI minus personal consumption expenditures and other outlays – shrank to $133.8 billion last month from June’s $272.9 billion.
Additional information, including the 13-page Personal Income and Outlays news release for July 2008, is available from the U.S. Commerce Department’s Bureau of Economic Analysis at www.bea.gov.
