WASHINGTON (AP):
AMERICANS' PERSONAL savings rate dipped into negative territory in 2005, something that hasn't happened since the Great Depression. Consumers depleted their savings to finance the purchases of cars and other big-ticket items.
The United States Commerce Department reported Monday that the savings rate fell into negative territory at minus 0.5 per cent, meaning that Americans not only spent all of their after-tax income last year but had to dip into previous savings or increase borrowing.
The savings rate has been negative for an entire year only twice before, in 1932 and 1933 'two years when the country was struggling to cope with the Great Depression, a time of massive business failures and job layoffs'.
With employment growth strong now, analysts said that different factors are at play. Americans feel they can spend more, given that the value of their homes, the biggest asset for most families, has been rising sharply in recent years.
RISKY
But analysts cautioned that this behaviour was risky at a time when 78 million Americans are on the verge of retirement.
"Americans seem to have the feeling that it is wimpish to save," said David Wyss, chief economist at Standard & Poor's in New York. "The idea is to put away money for old age and we are just not doing that."
The Commerce report said that consumer spending for December rose by 0.9 per cent, more than double the 0.4 per cent increase in incomes last month.
