Incomes Rise by Healthy 0.6% in July : Consumer Spending Slows From Earlier Breakneck Pace

Americans’ personal incomes climbed a healthy 0.6% in July, while consumer spending slowed from its breakneck pace of the previous month, the government reported today.

The Commerce Department said that the increase in incomes matched a 0.6% rise in June and would have been even stronger except for a drop in government subsidy payments to farmers.

Personal consumption spending, which includes virtually everything except interest payments on debt, rose 0.5% in July, less than half the 1.1% rise in June. The report attributed much of the slowdown to a decline in sales of new cars.

Good for Economy

The slower consumer spending was seen as good news for the economy because of worries that demand this year has been outstripping the ability of factories to produce the goods, thus creating rising inflationary pressures.

The income gain looked particularly impressive because the key component, wages and salaries, shot up 1% during the month, reflecting continued strong employment gains.

This was offset somewhat by a $9-billion rate of decline for farm subsidy payments. Excluding these payments, which show extreme month-to-month volatility, personal incomes would have risen 0.8% in July.

Americans’ disposable, or after-tax incomes, rose 0.6% in July, down only slightly from a 0.7% June increase.

Savings Edged Up

With incomes rising slightly faster than spending, the personal saving rate--saving as a percentage of disposable income--edged up to 4.3% in July, compared to 4.2% in June.

Following the 1.1% rise in spending in June, which had been the biggest advance in 10 months, the 0.5% July increase reflected gains in purchases of non-durable goods and services.

Non-durable goods spending rose at an annual rate of $3.5 billion, compared to a $5.5-billion June increase. Purchases of services, which includes housing costs, increased $12.2 billion following an even stronger $18.6-billion June increase.

But purchases of durable goods showed no change at all after a $12-billion rise in June because sales of new cars fell during July.