NCPA - National Center for Policy Analysis

Consumers Spending Money Faster Than They Make It

February 1, 2000

Small wonder that the past holiday season was a hot one for retailers: their customers were forking over more money than they were taking in, according to Commerce Department data.

In fact, the same held true for the entire year.

  • In 1999, Americans' income rose 5.9 percent -- matching the 1998 increase -- while spending rose 7 percent, up sharply from a 6 percent increase a year earlier, and the largest annual jump in spending since 1989.
  • For December, personal income rose 0.3 percent, while consumer spending surged 0.8 percent.
  • During December, the personal savings rate -- savings as a percentage of after-tax income -- registered 1.5 percent, the lowest on record, dropping sharply from the 2 percent recorded in November.
  • The 2.4 percent annual savings rate was also a low.

Measurements of personal income include wages, interest and government benefits. But the figures don't include gains from the rising stock market.

So analysts aren't particularly alarmed by the figures. They chalk the spending spree up to the "wealth effect" -- the enthusiasm Americans feel for spending as they watch their stocks rapidly appreciate in value.

Source: Yochi J. Dreazen, "Rate at Which Consumers Save Sinks to a Record," Wall Street Journal, February 1, 2000.

 

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