Personal Income Growth Strongest in Three Years : * Economy: Commerce Department reports a jump in consumer spending, fueling hopes that an economic recovery has begun.
Personal incomes increased in February at the strongest pace in three years, and consumer spending jumped sharply, offering encouragement that an economic recovery is underway, the Commerce Department reported Friday.
Incomes, including wages and salaries and farm subsidies, rose by 1.1%, the biggest monthly increase since January, 1989. Because consumer spending accounts for two-thirds of business activity, more money in consumers’ hands will help generate new jobs in an expanding economy.
Consumption is very strong in the first quarter, “setting the stage for a bright future,” said Michael L. Penzer, vice president and senior economist at BankAmerica in San Francisco.
Spending by consumers rose a healthy 0.9% last month, and the January figure was revised upward to 0.9% from the original estimate of 0.2%. “The consumer spending numbers look great,” Penzer said.
The increases were the largest consecutive monthly gains since February and March of last year, when spending rose 0.9% in both months. But that proved to be a false harbinger of recovery because the economy stalled in the summer.
White House spokesman Marlin Fitzwater lauded the increases in personal income and consumption, saying they “signal a positive contribution to real growth in the economy in the first quarter.”
But Treasury Secretary Nicholas F. Brady warned that if the Federal Reserve Board slows the expansion of the money supply in coming months, “the recovery will be threatened and an opportunity lost.”
Economists said consumers are spending more because their incomes have grown. Private-sector wages and salaries rose $33.2 billion last month, contrasted with a drop of $21.9 billion in January. The February figure rose 1.5%, the biggest advance in wages since December, 1987.
Government wages and salaries increased by $2.9 billion last month, a more modest advance than the January gain of $5 billion.
The Commerce Department’s report said income rose $54.3 billion last month, reaching an annual rate of $4.97 trillion. Personal spending climbed $37.1 billion to an annual rate of $4.14 trillion.
The figures are seasonally adjusted to account for such things as the surge in spending that occurs every Christmas and the round of layoffs that occurs in January with the dismissals of temporary personnel hired for the holiday shopping season.
Consumer spending is having a particularly vigorous impact in certain industries. The improved housing market, for example, is generating rapid sales increases for furniture and appliances. Much of the sales volume for these goods and other merchandise is drawn from current inventory, while the production of new goods has been sluggish. However, as increased demand shrinks inventories, there will be an upsurge in production, Penzer predicted.
Spending on durable goods--merchandise that lasts three years or more, such as autos, furniture and appliances--rose $13.7 billion last month, compared to a gain of $11.9 billion in January.
Outlays for non-durable items, such as food, gained $8.7 billion, after growing $13.9 billion in the prior months. Spending for services rose $14.7 billion in February and $11.7 billion in January.
Incomes can be increasing at the same time the unemployment rate is rising, a seemingly contradictory set of events. But this often happens in the early stages of an economic revival. Employers are very cautious and hesitate to hire new workers as demand rises. Instead, they have the current work force put in additional hours of overtime work. This expands wage and salary incomes.
Personal Income and Spending Climb Personal Income
Trillions of dollars, seasonally adjusted annual rate
Feb., ‘92: 4.97
Jan., ‘92: 4.92
Feb., ‘91: 4.76
Personal Spending
Trillions of dollars, seasonally adjusted annual rate
Feb., ‘92: 4.03
Jan., ‘92: 3.99
Feb., ‘91: 3.83
Source for both: Commerce Department
