U.S. July savings rate falls to negative 0.6%
10:48 a.m. 09/01/2005 By Rex Nutting
Provided by Market Watch

Inflation wipes out gains in personal incomes

WASHINGTON (Marke****ch) - U.S. consumers spent more than they
earned in July for just the second time in the last 46 years,
the Commerce Department said Thursday.

Personal incomes increased 0.3% in July, while spending soared
ahead by 1%. As a result, the personal savings rate tumbled to
negative 0.6%, the lowest since monthly records began in 1959.
Read the full report.

Quarterly data show negative savings rates for several quarters
during the Great Depression. The savings rate was negative 0.2% in
October 2001 and was 0% in June.

Negative savings rates are possible if consumers spend by
selling assets, dipping into savings or borrowing against
future income.

Economists were expecting incomes to rise 0.5% in July,
with spending expected to rise 1%, according to a Marke****ch
survey.See Economic Calendar.

In June, incomes rose 0.5%, while spending increased a revised 1%.

Inflation rates heated up in July with higher energy prices.
The headline personal consumption expenditure price index rose
0.3%, eating up all income gains in the month. Disposable
incomes were flat for the month. Core inflation - which removes
food and energy prices in order to judge underlying inflation -
increased 0.1%. Core inflation is up 1.8% in the past 12 months,
down from 1.9% in June and 2.2% earlier in the year.

The Federal Reserve is expected to boost short-term rates for
the 11th time on Sept. 20 to control rising inflationary
expectations. The tame core rate, however, is providing
ammunition for those who want the Fed to pause, particularly
now that Hurricane Katrina has introduced so much uncertainty
into the near-term outlook.
==========================