THE ECONOMY : Personal Income Edges Up 0.3% in June
Personal income rose a lackluster 0.3% in June as consumer spending, after adjusting for inflation, declined for a second straight month, the government said Friday in a report that renewed recession fears.
The Commerce Department said consumer spending, after taking inflation into account, edged down 0.1% in June following a 0.2% May decline. It marked the first back-to-back monthly declines in spending since September and October, 1987, a period when consumer confidence was shaken by the stock market crash.
Consumer spending, which accounts for two-thirds of overall economic activity, has been the driving force behind the record peacetime expansion, now in its seventh year. But economists are fearful that consumers, worried about their economic prospects, could begin to cut back sharply on their purchases.
The Commerce Department report said personal income grew a modest 0.3% in June following an even smaller 0.2% May increase. The gains were the weakest this year and reflected in part a slowdown in job growth, which has sent the unemployment rate edging upward.
“The economy, here at midyear, is beginning to flirt with a recession,” said Allen Sinai, chief economist of the Boston Co. “We are seeing consumers’ spending power being squeezed by higher inflation at the same time that pent-up demand for big-ticket items is pretty much exhausted.”
The government reported Thursday that the overall economy, as measured by the gross national product, expanded at a sluggish annual rate of 1.7% in the April-June quarter, the slowest pace in almost three years.
The Bush Administration insists that growth will rebound in the second half of the year, fueled by lower interest rates engineered by the Federal Reserve.
But Sinai said he believes that the sluggish growth will intensify, leading to rising unemployment in coming months and further weakening consumer confidence. He predicted that the economy would enter a mild recession either late this year or early in 1990.
David Jones, chief economist with Aubrey G. Lanston & Co., said he felt that the country would be able to skirt through this period of sluggish growth without a full-fledged downturn, helped in large part by further moves by the Fed to lower interest rates.
The central bank earlier this week acted for the third time since June to ease credit. Jones said the rapid pacing of these interest-lowering moves demonstrated how worried the Fed is about a possible recession.
“The Fed is concerned that some interest-rate-sensitive sectors of the economy, such as autos and housing, are still quite weak,” Jones said. “This will lead to further easing on the Fed’s part in August.”
Before adjusting for inflation, consumer spending was unchanged at an annual rate of $3.44 trillion in June following a modest 0.3% increase in May.
The key income category of wages and salaries was up 0.5% in June but this was in part a bounce back after wage income was essentially unchanged in May.