Americans Dip Into Savings : Economy: July was the second straight month that income growth, which was 0.3%, trailed consumer spending, 0.2%.
Faced with slight income growth, Americans dipped into their savings to maintain their standard of living in July, the second consecutive month that income growth trailed consumer spending, the government said Friday.
Spending increased a modest 0.3% to a seasonally adjusted annual rate of $4.08 trillion, the Commerce Department said. Income advanced even more slowly, up 0.2%, to an annual rate of $5.05 trillion.
In June, incomes barely budged, rising only 0.1%, while spending climbed 0.4%.
“This can’t go on forever,” said economist Sandra Shaber of the Futures Group, a Washington-based consulting firm. “For us to get a sustained increase in consumer spending, what’s required is jobs, jobs, jobs.”
Savings as a percentage of income slid to 5.1% in July from 5.2% in June. It was the lowest percentage since February.
Meanwhile, the nation’s trade deficit soared 42% to an 18-month high of $24.4 billion in the April-June quarter, the department reported. The bulk of the deterioration was attributed to a surge in imports, particularly computer equipment and aircraft.
Economists warned that a vicious cycle was developing: Consumers are reaching into savings to keep up their spending habits and that has reduced the pool of capital available for investment.
“One thing that is ominous is that income rises are so small consumers clearly are spending more than they have,” said Marco Babic, an economist with Evans Economics Inc. in Washington. “A lot of people are being forced to use their credit cards to borrow money, and so savings are falling.”
Savings fell to a seasonally adjusted annual rate of $226.7 billion in July from $228.8 billion in June and $240.7 billion in May.
That means that only 5.1 cents out of each dollar earned after taxes was put in savings last month, compared to 5.2 cents in June and 5.5 cents in May.
The savings figure is closely watched by economists not only as a barometer of consumers’ economic welfare but also as a measure of capital available for investment.
Other than in January, when incomes were flat, incomes have risen by fractional amounts each month this year. Gains in personal income--wages and salaries as well as income from dividends and interest--are essential for consumer purchases, which fuel two-thirds of the nation’s economic activity.
Economists look for economic growth to improve--but no sooner than the fourth quarter of this year and possibly not until 1993.
Consumer spending fell slightly in the second quarter and is not expected to rebound more than modestly in the July-September quarter without better income gains.
“It may be that we’re in another one of those unsustainable spending binges,” said economist Robert Brusca of Nikko Securities Co. “And as binges go, it’s not much. It’s kind of like trying to get drunk on a cheap bottle of wine that isn’t full.”
Disposable income--income after taxes--edged 0.2% higher in July after an anemic 0.1% rise in June. Disposable income adjusted to remove the effects of inflation rose 0.1% last month and was flat in June.
The most-watched component of income--wages and salaries--grew just 0.2% in July after a 0.1% decline the month before. Most of the gains came in government and service industries, although manufacturing payrolls also rose a bit.
Nearly half the overall income gain was accounted for by government payments such as unemployment benefits. Other contributors to income growth were non-farm business owners’ income and rental income. There were declines in farm income and in interest income.
The spending increase included a 0.6% rise in spending on non-durable goods such as food and clothing and a 0.5% rise in spending on services. However, spending on durable goods such as automobiles and appliances declined 1.8%.
The second-quarter trade imbalance was the largest in a year and a half since a $27.8-billion deficit in the fourth quarter of 1990 as sales overseas fizzled, partly because of weak markets in major trade partners like Germany and Japan.
The main reason for the deterioration in quarterly trade was a $6.8-billion jump in imports from first-quarter levels to $132 billion.
By contrast, total exports fell by $366 million between April and June from first-quarter levels to $107.6 billion.
The fall in foreign sales was entirely accounted for by weaker agricultural exports, notably wheat, while non-agricultural exports were unchanged from the first quarter, the department said.
Personal Income
Trillions of dollars, seasonally adjusted annual rate
July, ‘92: 5.05
June, ‘92: 5.04
July, ‘91: 4.83
Source: Commerce Department
Personal Spending
Trillions of dollars, seasonally adjusted annual rate
July, ‘92: 4.08
June, ‘92: 4.07
July, ‘91: 3.91
Source: Commerce Department
