A surge in consumer spending during the second quarter this year helped fuel the current economic recovery while pushing the rate of saving to its lowest quarterly level since 1950, the government said yesterday.
The personal saving rate was at 3.3 percent of after-tax income last month, following a 3.8 percent rate in May. Those historically low rates contributed to a 3.9 percent average for the quarter. An average rate is about 6 percent.
"We had an outburst of spending from March to June," said Robert Ortner, Commerce Department chief economist. Consumer spending last month increased at an annual nominal rate of 16.5 percent, Ortner said. However, he added, "Consumer spending is not expected to continue at that kind of pace."
He attributed the spending spree to "some pent-up demand going back to 1979" and to consumer optimism. Ortner said the low rate of savings didn't threaten the amount of funds available for investment or imperil the economic recovery. "Given that habits don't change that abruptly" the savings rate "is likely to move back up," he said.
Consumer spending increased 1.0 percent in June after an upward revision in spending rates for May. In addition, personal income increased 0.5 percent and wages rose 0.6 percent in June.
"Auto sales led the way, but outlays for services and nondurable goods increased as well," said Commerce Secretary Malcolm Baldrige. "The strength of the consumer sector is evident. If we see similar strength later this year in capital goods spending, we will have the makings of a steady, balanced and self-sustaining expansion."
"We needed the consumer spending for a short time--a booster rocket for the economy," Ortner said. "That wasn't bad." However, he said that in the near future, the public will begin to save more.
Personal income increased in June for the fourth straight month since a slight decline in February. The increase was $13.4 billion compared with a $30.1 billion jump in May, at seasonally adjusted annual rates.
Wages and salaries rose by $10.1 billion in June, about one third of which was an increase in manufacturing payrolls, Commerce said. Payroll gains were widespread, reflecting increases in most durable and nondurable goods industries. Employment, weekly hours and hourly earnings increases contributed to the gain in manufacturing payrolls, the government said.
Personal consumption expenditures, in current dollars, increased $21.2 billion in June, compared with a $33 billion rise in May. Durable goods purchases increased $8.8 billion, compared with $6.9 billion in May, and purchases of nondurables rose $2.3 billion in June, a much lower increase than the $18.6 billion jump in May. The decline in June was attributed to a drop in food purchases in June.
Personal saving, computed as after-tax income minus expenditures, was $75.4 billion in June compared with $88.1 billion in May.