U.S. Personal Income Climbs 0.6% in Month

Americans’ personal income rose a healthy 0.6% last month, with wages and salaries rising at the fastest clip since December, the government reported Thursday.

While analysts were encouraged by the upturn in income growth, they said a modest 0.3% rise in consumer spending hid continued weakness in retail sales that will need to be reversed in the months ahead for the economy to grow strongly this year.

The Commerce Department reported that the 0.6% rise in personal income was up sharply from a revised 0.1% gain in January, which had originally been reported as a 0.1% decline.

Spending Up 0.3%

The income gain included sizable growth in wages and salaries, which rose by $10.3 billion at an annual rate in February. This was 0.5% above the January level and the strongest gain since December.

Personal consumption spending, which includes virtually everything except interest payments on debt, rose by 0.3% after falling 0.4% in January.

However, the increase was concentrated entirely in a big jump in spending on services. Spending on both durable goods such as cars and appliances and non-durable goods actually fell in February for the second straight month.

Sandra Shaber, director of consumer economics at Chase Econometrics, said she believed that retail sales would increase in coming months based on the wage gain.

“After some fairly gloomy days with dismal numbers, I think the pickup in wage growth is an encouraging trend,” she said. “That is very important for consumer spending.”

The Commerce Department reported that savings, as a percentage of disposable income, rose to 4.7% in February from 4.4% in January for the highest level since last May. Savings hit a low of 3.6% in September.

Disposable, or after-tax, income rose 0.6% in February after a 0.4% January rise.

Meantime, a Bank of America economic forecast said interest rates and inflation are unlikely to return to their record-setting levels of the early 1980s.

“The period from 1979 to 1984 is an aberration from long-term historical interest rate trends,” bank economist Steven A. Wood said.

From 1979 to 1984, interest rates were unusually high due to rising oil prices and increasing inflationary expectations. Rates were kept high in succeeding years by a Federal Reserve tight money policy and widening federal budget deficits, Wood noted.

But the last two years have seen a dramatic fall in interest rates and inflation, accompanied by strong economic growth.