June 27, 2009 in Business

Stimulus having muted effect as Americans increase saving

Annys Shin Washington Post
Associated Press photo

Fifty-cent pieces pour into a coin-counting machine in Fairless Hills, Pa.
(Full-size photo)

WASHINGTON – Consumer spending edged up in May for the first time since February, new data show, as the government stimulus plan boosted incomes. But in a sign that Americans are not immediately spending all their extra cash, the national savings rate rose to a 15-year high.

The $787 billion spending plan Congress passed in February shaved payroll taxes, provided aid to the unemployed and eligible retirees, and offered other assistance. Those provisions were responsible for most of the 1.4 percent increase in personal income last month, the Commerce Department reported Friday.

Much of the stimulus money that recently rolled into bank accounts stayed there, pushing up the savings rate to 6.9 percent, from 5.6 percent in April.

While crafting the stimulus package, lawmakers debated how to give the flagging economy a lift. Sending more funds to states to extend unemployment benefits, for example, was considered a quick way to get money into circulation because the recipients were seen as likely to spend it right away. Funding for infrastructure projects is expected to take longer to kick in.

Alice Rivlin, of the Brookings Institution, said the stimulus is having an impact on consumer spending, it’s just hard to measure. “It’s a ‘compared to what’ question,” she said. Consumers “are spending more than they would have if they hadn’t had this income.”

The stimulus appears to have partly offset a drop in wages and salaries paid by private employers, who continue to cut jobs, hours and bonus payments. Wage and salary disbursements sank by $12.4 billion in May, led by declines in goods-producing industries, data show.

Mark Zandi, an economist with Moody’s Economy.com, said that if past experience is any guide, it will be a few more months before consumers get around to spending the extra cash. In 2001 and 2008, when the government issued rebate checks to boost spending, it took six months for consumers to spend two-thirds of the money.

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