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Published: Saturday, 10/29/2011

Spending up, savings off, wages mostly flat

Outlay noteworthy for durable goods


WASHINGTON — Americans are making a little more money and spending a lot more.

Under normal circumstances, that would be a troubling sign for the economy.

But a closer look at some new government figures suggests another possibility: People are saving less money because they’re earning next to nothing in interest.

Americans spent 0.6 percent more in September, three times the increase from the previous month, the government said yesterday.

Spending was especially strong on durable goods — things such as cars, appliances, and electronics.

At the same time, what they earned was mostly flat. Pay increased 0.3 percent, and overall income just 0.1 percent. After deducting taxes and adjusting for inflation, income fell for a third straight month.

So to make up the difference, many have cut back on savings.

The savings rate fell to its lowest level since December, 2007, the first month of the recession — and right about the time the Fed started its dramatic series of interest-rate cuts.

Considering how little you can get for parking your money at a bank, it hasn’t been a tough choice.

Paul Ashworth, chief U.S. economist at Capital Economics, said his firm is not too concerned with the decline in savings because it partly represents “a sharp decline in debt servicing costs.”

In other words, low interest rates mean it’s cheaper to borrow money.

The Fed began cutting interest rates four years ago at the start of the financial crisis.

The rate cuts took the federal funds rate, the key for short-term interest rates, from 5.25 percent down to near zero, where it has stayed since December, 2008.

The central bank has said it will keep rates super-low into 2013 as long as the economy stays weak.

While that means low returns for savers, it is designed to encourage people and businesses to borrow more.

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