Americans rediscover the piggy bank

The personal saving rate -- which was in negative territory as recently as November as households went into debt to maintain spending -- jumped to 5 percent in May, the highest since March 1995, according to Commerce Department data released on Friday.

Some $48 billion in rebate checks arrived in May, but households increased their spending by just $7 billion, or about 14 percent of the extra money they received.

With another roughly $50 billion of the nearly $110 billion total in stimulus checks arriving in June, the next month's report is likely to show the saving rate jumped again, perhaps to 8 or 9 percent, said UniCredit economist Harm Bandholz.

The money probably won't stay in the bank for long as debt-laden households struggle to pay for pricier food and fuel. That points to higher spending in the coming months, although inflation will limit the economic benefit because consumers must spend more than they did a year ago to buy the same amount of goods and services.

Even so, JPMorgan economists think the economy could grow at a 2 percent pace in the second quarter, with more modest growth in the third. Just a few months ago, the conventional wisdom on Wall Street was that the economy would be contracting by now.

What happens when the money runs out is the big question, and the answer could come as early as October. Rebate checks cannot cure the stubbornly high inflation that is sapping consumer spending power, nor can they fix the slumping housing market, which has wiped out a big chunk of household wealth.

"The worry is that after the stimulus relief fades away, the consumer will still be faced with the same underlying problems," said Nigel Gault, chief U.S. economist with Global Insight in Lexington, Massachusetts. "We expect to see both real consumer spending and real GDP declining in the fourth quarter."

PAY LATER

Until the 1990s, it was rare for the saving rate to dip below 7 percent. But as household wealth soared, thanks in large part to the housing and stock markets, Americans saw little need to save much money the old-fashioned way.