U.S. Incomes Up 0.5%, Best in 3 Months : Consumer Spending Climbs a Slim 0.2%; Home Building Slows

Americans’ personal incomes rose 0.5% in July, the biggest increase in three months, but consumer spending rose only modestly, the government reported today.

The Commerce Department said that the rise in personal income followed a tiny 0.1% June increase and a 0.1% May decline. It was the strongest gain since a 1.3% advance in April.

Personal consumption spending, which includes virtually all consumer payments except interest on debt, rose just 0.2% in July following strong gains of 1% in June and 0.8% in May.

The big increase in income was affected by a large increase in retroactive Social Security benefit payments, which boosted the July total.

Home Building Off 10%

In a separate report today, the Commerce Department said that builders, responding to slack demand in depressed farm and energy-producing regions, slowed their pace of home construction by 10% over the past three months.

Ground was broken on new homes at an estimated annual rate of 1,818,000 in July, down 1.8% from the revised June rate of 1,852,000, the department said.

The three-month decline was the steepest since the September-November, 1981, period, according to Census Bureau analysts, and July starts were at their lowest level since November, 1985.

Despite the setback, anticipated by many industry observers, the annual rate of housing starts for the year to date was an estimated 1,934,000, marking the strongest pace of residential construction since 1978.

South Hit Hardest

Regionally, the decline was steepest in the South, where the pace fell from 764,000 in June to 711,000 last month. Starts also declined in the West, from 505,000 to 483,000. Both regions have been hit hard by the collapse in energy prices combined with continuing woes in the agricultural sector.

The slowdown in personal spending likely reflected the weak income gains of the last two months. Analysts have been worried that consumers, who have provided the driving force behind the recovery, would start cutting back because of weak income growth and growing debt burdens.

The 0.2% July rise in consumption spending reflected weakness in sales of new cars, which dropped in both June and July. This held back purchases of durable goods--items, such as cars, expected to last three or more years--which rose at a small annual rate of $1.9 billion in July.

Purchases of nondurable goods increased $100 million last month while purchases of services, which includes housing costs, rose at a rate of $8.6 billion.