Gains Posted in Income, Spending

A mericans’ income in March rose at a healthy pace for the second consecutive month but their spending grew more slowly, the government said Wednesday, providing evidence that consumers remain cautious as the recovery unfolds.

Key factors: Personal income increased 0.6% last month to a seasonally adjusted annual rate of $4.99 trillion after an even stronger 1% rise in February, the Commerce Department said. Meanwhile, consumer spending rose 0.3% to an annual rate of $4.04 trillion, the fifth advance in a row. In February and March, income gains were bolstered by subsidy payments to farmers and by a presidentially ordered speed-up in life insurance dividend payments to veterans. Meanwhile, the modest spending gain last month came entirely from a 0.8% gain in spending on services ranging from medical care to auto repairs.

Good signs: The March increases in both spending and income were slightly better than economists were projecting and were seen as evidence that the recovery is proceeding, although slowly. In addition, the fact that incomes rose faster than spending raised Americans’ savings rate from 4.5% of income in February to 5.3% of income in March.

Bad signs: Wages and salaries have accounted for only about half of the income gains since November. The rest came from other factors, including rising welfare and unemployment payments and a reduction in income tax withholding, which began in March. While spending on services increased, there were declines in spending for durable goods--major purchases such as automobiles and appliances--and on non-durable goods, such as food and clothing.

Personal Income Trillions of dollars, seasonally adjusted annual rate March , ‘92: 4.99 Feb, ‘92: 4.96 March, ‘91: 4.78

Personal Spending Trillions of dollars, seasonally adjusted annual rate March, ‘92: 4.04 Feb., ‘92: 4.03 March, ‘91: 3.86 Source: Commerce Department