When consumer spending stalls it’s bad for the economy — but on the other hand it seems that people are saving money and paying down debt.
The personal savings rate rose to 6.4 percent of after-tax income in June, the highest reading in nearly a year. The savings rate is now about three times the 2.1 percent average for all of 2007, before the recession began.
While income growth was flat in June, incomes did post solid gains in April and May. But households chose to save the extra money rather than spend it. Higher savings restrain spending in the near term. But the extra resources allow households to repair their tattered balance sheets.
“It is of some comfort that households now appear to have something of a cushion that can be used to pay down debt or support spending,” said Paul Dales, U.S. economist at Capital Economics.