Rise in Personal Spending Fuels Concern on Inflation

Personal income was up for the fifth consecutive month in June, rising 0.7% from May, but inflation could rise because people spent more than they gained, the Commerce Department said today.

The $27.9-billion increase in personal incomes to $4.04 trillion followed a 0.5% rise in May, a modest 0.2% increase in April and a 1.0% jump in March.

But personal spending jumped 1% in June to $3.21 trillion, the seventh-straight monthly increase, the department said.

‘Taken as Good News’

“The continued rise in income has to be taken as good news,” said David Wyss, chief economist for Data Resources Inc. in Lexington, Mass. “Less good is the fact that people keep spending more than they earn.”

Wyss said that strong consumer demand threatened to increase the inflation rate, already a worry to many government and private analysts after Wednesday’s report on the gross national product showed inflation running at the highest level in four years.

“I think you have to worry about it,” Wyss said. “This much strength is just not good for the economy in the long run.”

People bought about the same amount of quickly consumed goods, such as food and clothing, but their purchases of expensive, long-lasting items, such as appliances and cars, jumped $8.6 billion, compared with a $2.7-billion increase in May.

People also saved a little less of their money in June, putting 4.3% of disposable personal income into savings, compared with 4.4% in May, the bureau said.

Wages, Salaries Up

Wages and salaries increased $17.8 billion in June, compared with a $13.2-billion increase in May. Most industries saw healthy increases, except for service industry payrolls, which rose more slowly in June than in May.

Americans’ after-tax income increased 0.8% in June after shooting up 2.4% in May.

On Capitol Hill, meanwhile, Federal Reserve Board Chairman Alan Greenspan reiterated that it would be better for the central bank to err on the side of restraint than to permit easy credit and a return of inflation.

But Greenspan told the House Banking Committee that he did not see shortages of workers that would lead inevitably to pressure for sharp wage increases.