U.S. Consumers Spend Savings to Record Low

WASHINGTON —  U.S. personal spending rose in July at twice the pace of incomes as consumers borrowed to make purchases and the savings rate fell to a record low, government figures showed Monday.

Spending on goods and services rose 0.6% last month, the largest increase since February, as car and other retail sales increased. In June, spending rose 0.4%, the Commerce Department said. Income increased 0.3% in July after a 0.4% rise the month before.

The boost in spending, which accounts for roughly two-thirds of the nation’s output, suggests consumers will keep the record economic expansion going, even as six interest-rate increases by the Federal Reserve since June of last year appear to be slowing overall growth and helping keep inflation in check.

With unemployment close to a 30-year low, “there is little reason to believe that household confidence won’t remain high and that spending won’t continue unabated,” said Joel Naroff, president of Naroff Economic Advisors in Holland, Pa.

As spending exceeded income growth, the savings rate fell to a minus-0.2% in July--the lowest since the government started keeping records in 1959--from 0.1% in June.

“Income growth just doesn’t support that level of spending,” said Don Hilber, an economist at Wells Fargo & Co. in Minneapolis.

The savings rate accounts for neither capital gains from investments nor improvement in home values, something which consumers may be counting on to pay for future expenses, such as retirement.

The rise in July spending was the largest since a 1.2% surge in February, Commerce figures showed.

July’s spending gain included a 0.8% gain for durable goods. Spending rose 0.5% for nondurable goods and 0.6% for services such as electricity and gas.

The rise in income in July was due to a 0.5% increase in wages and salaries. Wages were partly restrained by a drop in the number of temporary workers hired by the government to carry out the 2000 U.S. population count. Proprietors’ income and rental income declined last month. Farm income fell, reflecting fewer subsidy payments to farmers than a month earlier.

Disposable income, which excludes tax and other payments, rose 0.3% in July for a third straight month.

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Personal Income

Seasonally adjusted annual rate, in trillions of dollars:

July: $8.29 trillion

Source: Commerce Department

Personal Spending

Seasonally adjusted annual rate, in trillions of dollars:

July: $6.77 trillion

Source: Commerce Department