May Spending, Income Post Modest Gains : Economy: Experts say moderate growth rate of two key indicators is further sign of slow recovery from recession.
Personal income and consumer spending rose modestly in May, the government reported Friday, but analysts said the increases will not be enough to vitalize a dull economic recovery.
The Commerce Department said income grew just 0.3%, to $5.01 trillion, at a seasonally adjusted annual rate. Income in April totaled $4.99 trillion, a 0.1% gain.
The report said consumer spending rose 0.5% in May, to a seasonally adjusted annual rate of $4.06 trillion.
The department revised its April spending increase to 0.3%, or $4.04 trillion, from the original estimate of 0.4%. The March spending calculation, earlier reported as unchanged, was revised to a 0.1% decline, the first since October.
“Growth in income is very modest,” said Sandra Shaber, an economist with the Futures Group in Washington. “Luckily, inflation is so low that it’s permitting at least small improvements in purchasing power.”
Edward Yardeni and Debbie Johnson, economists with C. J. Lawrence in New York, said the modest income gains support forecasts that the recovery will be far less robust than rebounds from other post-World War II recessions.
Consumer spending, which represents two-thirds of the nation’s economic activity, fueled much of the economy’s first-quarter growth of 2.7% at an annual rate. That rate is about half the average growth for previous recoveries.
“It’s hard to see much of a gain in consumer spending in the second quarter,” Shaber said. “That removes one of the important props to the economy that we had in the first quarter.”
Economists Elliott Platt and Christine Schneider of Donaldson, Lufkin & Jenrette Securities in New York concurred, saying the April and May spending figures mean that growth in the second quarter was just 1.8%.
Although analysts described the income growth as meager, it was the first four-month string of advances since March and June, 1991.
Disposable income--income after taxes--rose 0.3% after being unchanged in April.
The fact that spending growth exceeded income gains means that Americans’ savings rate dropped to 5.3% in May from 5.4%. It had been 5.8% in March.
Wages and salaries totaled $2.89 trillion, up from $2.88 trillion a month earlier.
The income and spending figures were not adjusted for inflation. When adjusted, disposable incomes inched up 0.1% after falling 0.2% in April.
Consumer spending, when adjusted for inflation, was up just 0.3% after increasing 0.2% the previous month.
Spending on durable goods--items such as automobiles and appliances expected to last more than three years--increased $9.2 billion after a revised gain of $1.6 billion in April.
The department originally estimated that April’s durable goods spending had fallen $2.3 billion after an $8.6-billion drop in March.
Spending on non-durable goods rose $1.1 billion last month after April’s $6.4-billion advance. Expenditures for services were up $8.1 billion in May, also slower than the $10-billion increase a month earlier.
The figures come at the end of a week that saw several disappointing economic reports and an anxious call from President Bush for the Federal Reserve to cut interest rates.
With the presidential race heating up and the economy in the doldrums, Bush said there is room for the central bank to lower rates without risking harmful inflation.
The central bank’s policy arm, the Federal Open Market Committee, is scheduled to meet Tuesday and Wednesday to discuss the economy.
Personal Spending
Trillions of dollars, seasonally adjusted annual rate
May, ‘92: 4.06
April, ‘92: 4.04
May, ‘91: 3.87 Source: Commerce Department
Personal Income
Trillions of dollars, seasonally adjusted annual rate
May, ‘92: 5.01
April, ‘92: 4.99
May, ‘91: 4.83
Source: Commerce Department
