Personal Incomes Up 0.7%; Consumer Spending Also Rises

Personal incomes rose a healthy 0.7% in July, the best gain in four months, while consumer spending climbed at its fastest pace in three months, the government reported today.

The Commerce Department said consumer spending also rose 0.7% in July. It was the best gain since a 1.2% rise in April and followed a much weaker 0.2% June increase.

The 0.7% rise in personal incomes followed a 0.5% June increase and was the fastest advance since a 1% increase in March.

The statistics on Americans’ income growth and spending habits provided fresh evidence that the economy is not in danger of toppling into a recession. The report showed that consumer spending, which accounts for two-thirds of all economic activity, is being bolstered by healthy gains in income.

Just a month ago, economists were not as certain about the state of the economy. However, a string of government statistics since then have shown that the economy, and in particular the consumer sector, is not as weak as feared earlier.

Last month, the government reported that consumer spending, after removing the effects of inflation, had declined in both May and June. But in today’s report, the inflation-adjusted figures were revised upward to show modest increases of 0.1% in both May and June.

GNP Growth Also Up

On Tuesday, the government significantly revised upward its estimate of total economic growth, showing that the gross national product was growing at a healthy annual rate of 2.7% in the April-June quarter instead of the anemic 1.7% GNP rate originally reported. Most of that revision stemmed from the fact that the rate of consumer spending was twice what the government originally estimated.

Today’s report showed that consumer spending continued strong into the first month of the July-September quarter. Many economists have been busy revising upward their estimates for overall economic growth this year, pushing their forecasts closer to the 2.9% GNP target set by the Bush Administration.

The July report showed that Americans’ income after taxes also rose 0.7% in July, down slightly from a 0.8% after-tax increase in June.

With incomes growing at the same rate as spending in July, Americans’ savings rate, savings as a percent of disposable income, held steady at 5.7%. This is the highest level for savings since a 6.2% rate in March.

Wages, Salaries Increase

The key component of the income category, wages and salaries, increased $25.4 billion in July, up substantially from a $17.6-billion June increase. This advance occurred despite the fact that payrolls at manufacturing companies rose only $1.4 billion, down from a June increase of $2.9 billion.

On the spending side, the $25.4-billion rise in personal consumption spending, which includes everything except interest payments on debt, compared to a $6.6-billion June advance. Purchases of durable goods, items expected to last three or more years, increased $7.6 billion, up sharply from a $2.6-billion June increase.

Purchases of non-durable goods increased $4.6 billion, compared to a small $200-million decline in June.