Americans Are Saving More, Amid Rising Confidence

By KELLY EVANS U.S. consumers are saving more of their incomes than any time since 1993 -- a major shift toward frugality that's expected to be one of the lasting effects of this deep and lengthy recession. Still, consumer sentiment rose for the fifth month in a row in June, a separate report Friday showed, to its highest level since February 2008. The consumer sentiment index, produced by Reuters and the University of Michigan, rose to 70.8 in June from 68.7 in May, though it remains well below its peak of 96.9 in January 2007. The personal saving rate jumped to 6.9% in May, the Commerce Department said Friday, compared to 5.6% in April. The gain was partly attributable to one-time government payments to eligible seniors made under the Obama administration's economic-stimulus plan intended to spur consumer spending. But recipients seem unwilling to spend right away. Though the payments helped boost personal income by 1.4% in May, consumer spending -- the main driver of U.S. economic growth -- rose just 0.3% from the prior month. "The government is doing its job of adding stimulus to the economy in the short run," said Wachovia Corp. chief economist John Lonski. But he said it is not yet clear the plan is having the desired multiplier effect. Some think the high saving rate will keep a lid on consumer spending and a broader recovery. But for now, the outlook for U.S. growth this year is improving. Friday's reports cap a week that also showed improvement in business spending last month and a smaller drop in first-quarter economic growth than previously thought. Many economists now expect the recession, which began in December 2007, to end in the third quarter of this year. There are several obstacles weighing on prospects for a quick recovery. Households are facing the weakest labor market in decades, as the U.S. unemployment rate -- 9.4% as of May -- is likely to march higher when June data are released next Thursday. Roughly 6.7 million workers are drawing weekly unemployment benefits. "We still expect a subdued recovery," said economists at Barclays Capital in a note Friday. Write to Kelly Evans at kelly.evans@wsj.com