Consumer Spending Up 1% in Biggest Rise in 5 Months

Personal spending rose 1% in June, the strongest gain in five months, the government said Monday in a report suggesting that consumers are keeping the nation’s weak economy alive.

“This seems to indicate the consumer is not dead,” said Mark M. Zandi, an economist with Regional Financial Associates in West Chester, Pa. “As long as the consumer hangs in there, I believe we will avoid a recession.”

The Commerce Department said consumer spending totaled a seasonally adjusted annual rate of $3.64 trillion, the biggest jump since a similar 1% gain last January.

“This does not indicate we’re going into an economic recession,” agreed Sung Won Sohn, chief economist with the Norwest Corp. in Minneapolis. He noted that consumer spending accounts for two-thirds of the nation’s economic activity.

Consumer spending had been a source of concern in recent months. Spending rose just 0.2% in February and April and 0.3% in March. Spending was unchanged in May.

As measured in the gross national product, the nation’s total output of goods and services, second-quarter personal spending actually fell 0.3%.

But Sohn said the June personal consumption figure, which includes everything except interest payments on debt, indicates that third-quarter spending will be a source of strength for the economy.

The Commerce Department also said personal incomes rose 0.4% to a seasonally adjusted annual rate of $4.64 trillion after 0.3% gains in April and May.

But the higher spending level resulted in a drop in Americans’ savings rate--savings as a percentage of disposable income--to 4.9%. It had been 5.4% in May and 5.1% in April.

A higher savings rate means less dependence on foreign capital since more funds would be available domestically for business investment.

All of Monday’s figures reflected major changes in last year’s numbers as a result of the Commerce Department’s annual revision announced last week. The biggest change involved the department’s $57.9-billion overestimate in wages and salaries, which resulted in lowering the 1989 savings rate from 5.4% to 4.6%.

Americans’ income after taxes increased 0.5%, up from a 0.3% gain a month earlier.

PERSONAL INCOME

Trillions of dollars, seasonally adjusted June, ‘90: 4.64 May, ‘90: 4.62 June, ‘89: 4.37

PERSONAL SPENDING

Trillions of dollars, seasonally adjusted June, ‘90: 3.64 May, ‘90: 3.61 June, ‘89: 3.44