Thursday February 02, 2006

US savings rate dips below zero, lowest since Depression

business-times.asia1.com.sg :

The personal savings rate in the US dropped below zero last year for the first time since the Great Depression as Americans spent more than they earned. The national savings rate as a percentage of disposable income fell to -0.5% last year, according to Commerce Department data. That's the first negative savings rate since 1933, when the rate was -1.5% and the country was in the longest and most severe economic decline of its history.

'The negative savings rate gives you an indication of how much people are living beyond their means,' said Robert Brusca, president of Fact & Opinion Economics in New York. 'It's like the US, as a whole, is living off a credit card. We don't know when or where we're going to hit the limit of that card.' The negative savings rate implies 'the economy is more fragile than the spending suggests', and will pose a problem for the Federal Reserve, Mr Brusca said.

Americans spent US$41.6 billion more than they earned last year - the biggest dip into savings since record keeping started in 1929, the Commerce Department said. Rising home values and low interest rates contributed to the spending spree, allowing Americans to borrow against home equity to finance purchases.

(2006-02-02 00:23:38 SGT) [Biz] Permalink

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