Government stimulates savings more than spending On Friday June 26, 2009, 5:46 pm EDT - The Associated Press Millions of Americans get stimulus payments in May, but money goes into savings WASHINGTON -- Households raised their savings rate to the highest level in more than 15 years in May as many used a big boost in money from the government's stimulus program to bolster nest eggs rather than to spend more. Still, with consumer spending expected to stay subdued, a sustained economic recovery seems doubtful anytime soon. The biggest chunk of the income gain in May came from $250 payments for more than 50 million Americans receiving Social Security and other government benefit programs. In all, $13 billion of the one-time payments were mailed last month. Millions of other workers benefited from the tax-credit part of the $787 billion stimulus plan. That program provides up to $400 for individuals and up to $800 to married couples. Workers began receiving that benefit in April in the form of less money withheld from pay, averaging about $10 per weekly paycheck. The bigger Social Security benefits pushed incomes up 1.4 percent in May, the biggest gain in a year. Yet it did not cause a similar jump in spending. Consumer spending rose only 0.3 percent. Instead, Americans used their government windfalls mainly to boost savings. The personal savings rate, which was hovering near zero in early 2008, soared to 6.9 percent in May. That was a 1.3 percentage-point gain from April and the highest rate since 1993. Private economists expressed concerns, saying the next few months will be vital in determining whether the stimulus package works. Many still think about two-thirds of the stimulus payments will end up being spent. That would be similar to the outcomes in previous government stimulus programs in 2001 and 2008. And it could deliver enough of an economic punch to end the recession. But analysts said high levels of layoffs or a further surge in energy prices could derail any recovery. Record-high energy prices last year dampened the effectiveness of a stimulus effort then. "The next three to six months will be the moment of truth that will determine whether the stimulus effort will be enough to break this very vicious cycle," said Mark Zandi, chief economist at Moody's Economy.com. "I am hoping that somewhat firmer retail sales this summer and fall will convince businesses to scale back on their job cuts." One concern is that the recession, which began in December 2007, has so rattled consumers that they will keep raising their savings rate to replenish their bank and investment accounts. Those savings have been shredded by the fall in housing and stock prices. Some analysts say the savings rate could rise to 10 percent. But Nigel Gault, chief U.S. economist at IHS Global Insight, said he expects it to stabilize in coming months in the 6-to-7 percent range. "We expect spending to creep slowly higher in the second half of the year as the labor market deterioration becomes less severe," Gault said. The reductions in payroll withholding taxes helped boost after-tax incomes 1.6 percent in May, the Commerce Department said. Without all the one-time benefits from the stimulus program, after-tax incomes would have risen only 0.2 percent. The rise in the savings rate -- which is a percentage of disposable income -- to 6.9 percent was far above the rates of less than 1 percent from 2005 to 2007. In those years, many Americans spent with abandon as soaring home prices and a stable stock market made them feel secure about their finances http://finance.yahoo.com/news/Government-stimulates-savings-apf-2698325410.html?x=0&&printer=1
