As incomes drop, Americans dip into savings

September 30, 2011

The personal income of Americans dropped for the first time in two years in August, according to government figures released Friday, forcing people to dip into their savings to cover their spending.

The drop in earnings is just one more sign that the country’s stalling economy is straining families — and it’s consistent with a generally bleak picture for American workers whose wages have remained stagnant since 2001.

Personal income fell 0.1 percent in August compared with the month before, the first decline since October 2009, the government said. As a result, Americans tapped their reserves, dropping the personal savings rate to its lowest point since December 2009, or 4.5 percent. Meanwhile, spending remained flat, when adjusting for inflation.

The trend is rooted in the country’s nagging unemployment problem, analysts said. N o new jobs were created in August, keeping the unemployment rate stuck at 9.1 percent.

“You have a massive number of families, and not just the unemployed, who feel like their financial position is not where they want it to be,” said David Neumark, professor of economics and director of the Center for Economics & Public Policy at University of California, Irvine. “And the only way to get there is to save more.”

Meanwhile, prices for food and gas are creeping up, rising 0.2 percent in August compared with July. Energy prices rose 1.2 percent while food prices ticked up 0.6 percent.

“In order to cope with higher prices for most goods and services — especially food and gasoline — many households had no choice but to save less, spend more and get less,” wrote Chris G. Christopher Jr., senior principal economist at IHS Global Insight in a note. “All of this is happening in an economic environment with volatile equity markets, falling household assets, diminishing 401(k)s, high unemployment and depressed consumer confidence.”

Michael Marshall, 54, a District resident, said he left his full-time job at Staples in 2008 to help care for his mother. On Friday afternoon, he was applying for jobs at a city unemployment center on Minnesota Avenue in Northeast.

“My savings account is gone as of this moment that we’re speaking,” Marshall said. “It’s a full-time job looking for a job.”

He posted his résuméon the government unemployment Web site and has set up three interviews already.

Some local shoppers have noticed the rising prices.

“Prices have gone up,” said Vanesssa Jordan of Fredicksburg, Va., who was shopping at the Costco store at Pentagon City in Arlington. “You have to start holding on to what you have.”

The recent recession laid bare broader economic trends that have been squeezing the middle class for years.

According to Census data released in September, the typical American family actually saw its earnings decline in the past 10 years, the first time that has happened in this country for at least five decades. Meanwhile, executive pay has exploded and corporate profits have hit record levels.

Government data show that real median household income hit a peak of $53,252 in 1999. Wages began stalling years before the financial crisis, but persistent joblessness has exacerbated the issue.

Consumers appear to be holding back on their spending with the jobs crisis so persistent and wages flat.

Reflecting the grim mood about the economy, stocks fell Friday with the Dow Jones Industrial Average plunging 2.2 percent, or 241 points, to close at 10,913.38. The Standard & Poor’s 500 index, a broader measure, dropped 2.5 percent and has fallen more than 14 percent in the past three months. The quarterly drop is the worst since the financial crisis of 2008.

Business activity, however, appears to be on the rise. The Institute for Supply Management-Chicago’s business barometer increased to 60.4 in September, up from 56.5 in August.

morrisone@washpost.com

Jia Lynn Yang is a staff writer at The Washington Post who covers policy and business. Before joining the Post, she worked at Fortune magazine.
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