Americans spent 0.2 percent more than they made in September, the Commerce Department said Monday. It was the first time Americans had dipped into their savings in at least 39 years.
Personal spending grew 0.5 percent to $6.067 trillion annual rate in September while personal disposable incomes rose 0.2 percent to $6.055 trillion.
It is the first time the personal savings rate has been significantly negative since the government began tracking the data monthly in 1959. Savings were slightly negative (statistically insignificant) in June. The annual savings rate was negative in 1932 and 1938, the government said.
In a separate report, the National Association of Purchasing Management said its index fell to 48.3 percent in October from 49.4, the fifth decline in manufacturing activity in a row. The NAPM said its production index fell to 52.6 percent from 54.4 percent, while new orders plunged to 45.7 percent from 50.1 percent in September.
The supplier delivery index was unchanged while the NAPM employment index slipped to 45 percent from 45.5 percent.
"The manufacturing sector continued to contract in October," said Norbert Ore, chairman of the NAPM business survey committee. "While production grew in October, the new orders index declined significantly and signals a continuing softness that could carry into the fourth quarter."
In the incomes and spending report, the government said personal incomes rose 0.2 percent in September to a $7.173 trillion rate in September. It was the weakest growth in incomes since April 1997.
Wall Street economists were expecting spending to grow about 0.5 percent and incomes to increase about 0.3 percent.
In the past year, the government has reformulated some of its definitions and is now classifying dividends from mutual funds as capital gains and not as income. Dividends reinvested are not counted as savings, either. The effect of the change is to dramatically lower the savings rate. Still, under the new definition, the savings rate was 2.9 percent in 1996 and 2.1 percent in 1997; it has fallen below 1 percent in every month since April.
Negative savings occurs, the department said, when consumers finance spending by dipping into savings, using credit or by selling assets.
Economists have often fretted over the low U.S. savings rate, comparing it to some Asian nations where the rate exceeds 20 percent, fearing that investment is hurt by a low savings rate. But much of those Asian savings are invested in the United States, where yields are higher and perhaps safer. Another major source of funds for U.S. investment is corporate saving or borrowing. Despite the low savings rate, U.S. companies can get all the capital they need.
Right now, the global economy needs more spending, not more savings. The Group of Seven nations is trying to coordinate policies to boost demand.
In September, incomes rose $12.1 billion. Private wages and salaries increased $3.3 billion depite a $1.6 billion drop in payrolls in goods-producing industries.