NEW YORK (AP) — Investors are nervous about the savings rate outpacing spending.
Stocks slipped in early trading today after the Commerce Department reported that personal spending, incomes and savings all rose in May. What troubled investors, though, was that the savings rate soared to 6.9 percent, a 15-year high, while spending rose by a modest 0.3 percent.
The trend suggests that consumers are being shrewd with their money. But it’s not great for the overall economy in the short-term.
Phil Orlando, chief equity market strategist at Federated Investors, said he expects the savings rate to eventually hit 10 percent before it eases. The savings rate had been 5.6 percent in April, and annual savings rates were below 1 percent from 2005 through 2007.
“If people ramp up savings that aggressively, that is going to result in less GDP recovery than ordinarily would be the case,” Orlando said.
Gross domestic product dropped at an annual rate of 5.5 percent in the first quarter, the government reported earlier this week. As the second half of 2009 draws to a close, investors are growing more anxious about whether the economy can bounce back later this year.
It’s been a choppy week for the stock market. After four straight days of losses, the Dow Jones industrial average rebounded by 2.1 percent on Thursday. Traders appeared eager to take some profits from that jump ahead of the weekend, analysts said.
In early trading, the Dow Jones industrial average fell 25.85, or 0.3 percent, to 8,446.55. The Standard & Poor’s 500 index fell 3.02, or 0.3 percent, to 917.24. The Nasdaq composite index fell 4.18, or 0.2 percent, to 1,825.36.
The Russell 2000 index of smaller companies fell 1.68, or 0.3 percent, to 507.50.
Later Friday, the University of Michigan will report on consumer sentiment.
Government bond prices rose modestly. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.51 percent from 3.54 percent late Thursday.
Crude oil fell 20 cents to $70.03 a barrel on the New York Mercantile Exchange.
The dollar fell against other major currencies. Gold prices rose.
Overseas, Japan’s Nikkei stock average rose 0.8 percent. In afternoon trading, Britain’s FTSE 100 fell 0.3 percent, Germany’s DAX index fell 0.5 percent, and France’s CAC-40 fell 0.9 percent.
