Americans' personal incomes, bolstered by a variety of one-time special factors, rose 0.5% in July, the best showing in three months, the government said Wednesday.
While some economists hailed the increase as the best economic news in some time, others cautioned that the increase in wages and salaries, the key component of the income statistic, remained sluggish and that consumer spending rose at a lackluster pace.
On another front, the government said housing construction edged down 1.8% in July to an annual rate of 1.82 million units. While it was the third consecutive monthly decline, housing construction for the first seven months of the year is 9.1% ahead of last year.
Analysts attributed the string of declines to a rise in mortgage interest rates after a dramatic fall earlier in the year. They said that with mortgage rates now declining again, the housing industry is well on its way to having its best year since 1978.
Inflated by Special Factors
The Commerce Department said the gain in personal income was the best since a 1.3% increase in April. It followed a 0.1% increase in June and a 0.1% decline in May. But some economists said the 0.5% rise in July was inflated by special factors, which overstated the strength that otherwise would be reflected in the number.
The government said a large part of the increase came from retroactive adjustments to Social Security benefits for recent retirees and a bounce-back from the strike against American Telephone & Telegraph, which had depressed the June figure.
"After you sort out all the special factors, incomes--particularly in the important wage and salary component--are growing rather slowly," said Sandra Shaber, director of consumer economics at Chase Econometrics. She said the weak income growth was partly to blame for the sluggish 0.2% rise in personal consumption spending in July. Personal consumption spending, which includes virtually everything except interest payments on debt, had risen by 1% in June and 0.8% in May.
Wages and salaries rose at a modest annual rate of $5.3 billion in July, up somewhat from the June gain of $4.7 billion. Payrolls at manufacturing plants, which have been in a deep slump for some time, declined $800 million in July following a $1.9-billion drop in June.
Discouraging news came on another economic front as the government trimmed its estimate of American farm exports to $26.5 billion for this fiscal year, the lowest amount in nine years and 39% less than the record of $43.8 billion in 1981. The projection would be the smallest trade level since American farmers exported $23.9 billion of farm products in 1977.
The United States recorded agricultural trade deficits in May and June for the first time since 1959 except during longshoremen's strikes. Nonetheless, the Agriculture Department predicted a $6-billion trade surplus for the entire fiscal year.