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U.S. Incomes, Spending Rise, Savings Fall to 74-Year Low
Published in Saudi Press Agency on 01 - 02 - 2007

U.S. incomes and spending rose as expected in December, while core consumer prices gained less than anticipated, suggesting inflation is contained, a government report said Thursday.
However, the Commerce Department reported that the savings rate for all of 2006 was negative 1 percent, meaning that Americans spent all the money they earned and also used savings or increased borrowing to finance purchases.
The 2006 figure was lower than a negative 0.4 percent in 2005 and was the poorest showing since a negative 1.5 percent savings rate in 1933 during the Great Depression.
For December, incomes rose 0.5 percent following a 0.3 percent gain the previous month. Spending rose 0.7 percent, the best showing in five months.
Core consumer prices, which exclude volatile energy and food costs, rose 0.1 percent in December after being unchanged in November. Core prices rose 2.2 percent from December a year ago, the same pace as the 12-month rise in November. Officials at the Federal Reserve have said they prefer the 12-month rise in core prices to remain between 1 percent and 2 percent.
The savings rate has been negative for an entire year only four times in history-in 2005 and 2006 and in 1933 and 1932. However, the reasons for the decline in the savings rate were very different during the two periods. During the Great Depression, when one-fourth of the labor force was jobless, people used savings in an effort to meet the basic necessities of shelter and clothing.
Economists have listed various reasons to explain the current lack of savings. These include the belief of some that they do not need to save because of the gains in their investments such as homes and stock portfolios, and an effort by many middle-class Americans to maintain their current lifestyles even though their wage gains have been depressed by the effects of global competition.
For December, the savings rate fell to a negative 1.2 percent, compared to a negative 1 percent in November. The savings rate has been in negative territory for 21 consecutive months.
In other economic news, the Labor Department reported that the number of workers filing claims for unemployment benefits fell by 20,000 last week to 307,000. The decline pushed the four-week average for jobless claims to the lowest level in a year, indicating that the labor market remains strong.


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