Income Climbs 0.4%; Spending Rises by 1.1%

Americans’ personal income climbed 0.4% in August, the best gain since April, while their spending shot up an even faster 1.1%, the strongest performance since December, the government reported today.

The Commerce Department said that the rise in personal consumption spending followed a July increase of 0.4% and was the biggest upturn since a 1.9% increase in December, 1985.

The spending surge came primarily in purchases of new cars as consumers responded enthusiastically to the return of cut-rate financing incentives offered by auto makers.

Analysts said the September increase in spending is expected to be even greater since early reports show a larger surge in car buying this month.

Other Influences

The 0.4% rise in income followed a 0.3% advance in July and no change at all in June. However, analysts said the changes in the last three months have been influenced by a host of special factors, including retroactive Social Security benefit payments, changes in farm subsidy payments and a strike in the communications industry in June.

Excluding these factors, the August gain in income would have been an even stronger 0.5%, the department said.

The all-important wage and salary component of income climbed at an annual rate of $12.2 billion in August, double the July gain. Manufacturing, which has been in a slump for almost two years because of foreign competition, enjoyed a $3.2-billion rise in August payrolls compared to a drop of $400 million in July.

Disposable, or after-tax income, rose 0.3% in August, up slightly from the July increase of 0.2%.

The personal savings rate, savings as a percentage of disposable income, slipped to 3.1% in August, down from 4% in July.