Income, Spending Climb

Americans’ personal income increased 0.5% in March, the best showing in three months, and they used the extra money to boost consumer spending 0.6%, the government reported Friday.

The Commerce Department said the March income gain followed a 0.4% rise in February and was the best since a 3.7% surge in December, when the income figure soared because of a special dividend payment made by software giant Microsoft Corp.

The increase in consumer spending followed a 0.7% gain in February and contrasted with no increase at all in January.

Both income and spending came in better than economists had expected, bucking a recent trend of statistics showing that economic activity slowed significantly in March.

In another report, the Labor Department said Americans’ wages and job benefits rose 0.7% in the first three months of this year after an increase of 0.8% in the fourth quarter of 2004. The increase in the employment cost index was the smallest in six years and may ease concerns that inflation pressures are mounting.

The March rise in consumer spending was led by a 2.2% jump in outlays for durable goods such as autos and other items expected to last at least three years. Spending on nondurable goods was essentially flat while spending on service, the biggest category of spending, rose 0.6%.

When inflation was taken into account, spending in March rose 0.1% after a 0.4% increase in February.

Disposable income, the amount left after paying taxes, also showed a 0.5% gain in March. However, that increase is wiped out when inflation is taken into account.

Personal savings, represented as a percentage of disposable income, dropped to 0.4%.