Personal Income in U.S. Rises as Spending Slows

Americans made more money in February than in January and socked away a greater portion of it in savings, the Commerce Department reported Thursday.

Personal income climbed 0.9% last month to a seasonally adjusted annual rate of $4.64 trillion--the biggest monthly gain since a 1% jump in March last year. Income rose 0.7% in January.

But the rate of increase in personal spending last month slowed sharply to 0.4% for a total seasonally adjusted annual rate of $3.63 trillion. It followed a 1% increase in spending in both January and December.

The combination of conservative spending and rising earnings left Americans with excess cash, pushing up the U.S. savings rate to 5.7% in February from 5.3% in January.

“We can’t say yet that consumer spending is falling apart because there are peculiarities in the data so far in 1990, and a lot of it was weather-related,” said Kathryn Kobe, vice president of the Washington-based forecasting firm Joel Popkin & Co.

She said January spending was inflated by hefty price increases for energy products, as heating oil suppliers rebuilt stocks drawn down during December’s bitter winter cold and price rises were passed on to consumers.

Personal spending is the main engine of economic growth in the United States, accounting for about two-thirds of demand for total goods and services output, or gross national product.

The sharpest drop in spending came in the category of long-lasting durables, primarily because of weak car sales, which fell in February after a pickup in January when widespread price incentives were available.

Durables spending dropped to a seasonally adjusted annual rate of $486 billion from $501 billion in January, while spending on non-durables went up moderately to a rate of $1.17 trillion last month from $1.16 trillion in January.

“We were expecting car sales to drop but the falloff was much sharper than we had anticipated,” Kobe said.

She also said increased savings might reflect a general tightening of lending requirements by banks and savings and loans. Personal savings went up to a seasonally adjusted annual rate of $225 billion in February from $206 billion in January.

“Part of it may be that no banks will give them loans,” she said, “It’s something that may start to cause a problem in the future on spending.”

While economic policy-makers have deplored Americans’ low savings rates in comparison to the rest of the world, the Bush Administration has also expressed concern that high interest rates might curb spending and slow expansion.

PERSONAL INCOME

Trillions of dollas, seasonally adjusted: Feb., ‘90: 4.64 Jan., ‘90: 4.60 Feb., ‘89: 4.32 PERSONAL SPENDING

Trillions of dollas, seasonally adjusted: Feb., ‘90: 3.63 Jan., ‘90: 3.62 Feb., ‘89: 3.38 Source: U.S. DEPARTMENT OF COMMERCE