Personal Income Rises--and So Does Spending

Associated Press

Americans' personal incomes, boosted by profit-sharing payments in the auto industry, posted the biggest gain last month since December, while consumer spending jumped a healthy 0.7%, the government reported Wednesday.

The Commerce Department said personal incomes climbed 0.8% in March after a 0.6% gain in February. It was the best increase since an identical 0.8% advance in December.

Consumer Strength

Analysts said spending and income figures showed that the consumer, who cut back on purchases immediately following the October stock market crash, had rebounded and was continuing to propel overall economic growth.

In reporting Tuesday on the gross national product, the government said the consumer was the biggest source of strength during the first three months of the year. Consumer spending rose at an annual rate of 3.8%, after adjusting for inflation, during the quarter.

Consumer spending, which accounts for two-thirds of overall economic activity, had declined by 2.5% in the final three months of 1987, raising fears that if Americans stopped spending, especially for big-ticket items, the nation could be pushed into a recession.

"There is no serious consumer retrenchment going on. People are still willing to buy," said Sandra Shaber, an economist with the Futures Group, an economic forecasting firm in Washington. "We shouldn't face any serious problem of a spending slump for the rest of the year."

Shaber predicted that consumer spending would rise at a modest 2% annual rate for the entire year, about the same as in 1987.

The 0.8% March increase in incomes would have been a much smaller 0.2% if special factors including an annual bonus for auto workers had been excluded.

The average $2,500 payment to 108,000 Ford Motor Co. employees accounted for more than half of the increase in wages and salaries last month, which rose 0.5% in March, the government said.

David Wyss, an economist with Data Resources Inc. of Lexington, Mass., said that with unemployment now at a nine-year low of 5.6%, the modest increase in wages for the month was good news. He said it showed the economy is not beginning to see inflationary pressures from rising wage demands.

Savings Rate Dips

"Wages are rising at an annual rate of about 2.5% to 3%, which is still low by historical standards," Wyss said.

In all, personal incomes rose $29.6 billion to a seasonally adjusted annual rate of $3.92 trillion. Personal consumption spending, which includes virtually everything except interest payments on debt, rose $21.8 billion to an annual rate of $3.19 billion. Disposable, or after-tax, incomes were up as well, climbing 0.6% in March following a 0.8% February rise.

Americans' savings rate, savings as a percent of disposable income, dipped slightly last month to 4.5% from 4.7% in February, although both months showed an improvement from the 3.7% average savings rate in 1987.

The spending advance came non-durable goods and services. Durable goods, items such as cars that are expected to last at least three years, edged down $300 million during March after a huge $9.2-billion rise in February.

But purchases of non-durable goods were up $9.8 billion while purchases of services, which include housing costs, rose $12.2 billion.

Copyright © 2019, Los Angeles Times
EDITION: California | U.S. & World
64°