Personal Income Up 0.2% in March

Associated Press

Personal income edged up a tiny 0.2% in March, the poorest showing in four months, while consumer spending was up marginally as well after a strong February, the government reported Friday.

The Commerce Department said the income gain followed a much stronger 1.3% increase in February, although this figure was inflated by large farm subsidy payments that month.

The 0.3% rise in consumer spending followed a giant 2.4% spending surge in February, a month in which spending had rebounded after a giant 2.0% decline in January.

The consumer spending figures have swung dramatically since the end of last year because of changes in the tax code. Many consumers shifted big-ticket purchases into the closing weeks of 1986 in order to be able to deduct sales tax payments from their federal income taxes, a benefit lost with the new tax law.

Analysts said the modest 0.3% rise in consumer spending for March was much more reflective of what they believe will be the pattern for the rest of the year: consumer spending advancing at a sluggish pace, held back by weak growth in incomes.

"We are seeing further evidence that consumer spending is slowing down and will continue to slow down," said Sandra Shaber, an economist with the Futures Group in Washington. "The combination of slow income growth and creeping inflation is one of the reasons it is very difficult to be optimistic about consumer spending."

Consumer spending accounts for two-thirds of overall economic activity and has been the driving force behind the country's recovery from the 1981-82 recession.

The Reagan Administration is counting on a lower trade deficit to boost economic growth in 1987, but most economists believe strength from better trade figures will be offset by the consumer slowdown.

The 0.2% increase in March was the slowest income gain since an identical 0.2% rise last November.

However, the weakness stemmed in part from a big swing in farm subsidy payments, which inflated the February increase and depressed the March numbers. With those payments removed, incomes would have risen by 0.4% in March after a 0.7% February increase, the government said.

But even after discounting the volatile farm payments, analysts said the important wage and salary component of incomes was very weak in March, reflecting weaker employment figures for the month.

Wages and salaries increased at an annual rate of $7.4 billion in March.

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