THE ECONOMY : U.S. Personal Incomes, Spending Up Modestly in June : Indicators: The rise portends a slow but steady increase in consumer activity for the second half of the year.
Consumer spending and personal incomes rose modestly in June, the government said Monday, pointing to slow but steady economic growth in the second half of the year.
The Commerce Department said personal incomes rose 0.4% to a seasonally adjusted annual rate of $6.02 trillion in June, and spending picked up a modest 0.2% to a rate of $4.86 trillion.
“It’s consistent with the kind of sub-par economic growth we’re all expecting for the rest of this year,” said economist Sung Won Sohn of Norwest Corp. in Minneapolis.
The slowly reviving pace of consumer activity was foreshadowed in Friday’s government report that gross domestic product, the nation’s total output of goods and services, rose at a slim 0.5% annual rate in the second quarter.
The expansion was the weakest in 3 1/2 years, down sharply from the first quarter’s 2.7% rate, but it did indicate that consumers are boosting spending more heartily than in the first quarter.
The latest income and spending figures support the picture of a slowly expanding economy, at a rate of about 2% a year, economists said.
“We should not be expecting an economic boom, obviously, but these figures are consistent with a subdued rate of growth for the rest of the year,” Sohn said.
In its midyear review of economic prospects, issued Monday as President Clinton flew to Vermont, the White House forecast that the economy will expand 1.9% this year, picking up moderately to 2.5% in 1996.
A separate report Monday, showing that the Chicago Purchasing Managers’ index climbed in July, also indicates a gradually improving economy as new orders and backlogs grew at the start of the second half.
Analysts said an inventory correction, during which manufacturers slow production to try to work off stocks of unsold goods, is making headway as consumer demand appears to be holding up enough to justify stronger business ahead.
That notion was buttressed in a survey issued by Cahners Economics Inc., a Newton, Mass.-based research organization that says its monthly survey of 400 business executives shows a marked pickup in business confidence in July.
Fully 58.2% of the executives said production rates will be boosted between now and October, while the percentage planning to hire more employees in that period climbed to 44% in July from 34.2% in June--indicating that wages and salaries will keep growing.
The rise in consumer incomes in June reported by the government, while not as strong as forecast, was a rebound from the 0.2% decline in May.
But June’s spending increase was significantly weaker than the revised jump of 0.9% in May.
Economist Hugh Johnson of First Albany Corp. said the figures were “a little bit disappointing” in view of expectations but that they still imply stronger expansion.
“As was pointed out in the second-quarter GDP, consumer spending looks strong enough to help eliminate the inventory overhang and set the stage for a stronger second half of the year,” Johnson said.
Gains in personal income, which includes wages, salaries, dividends, interest and other earnings, are essential for funding consumer purchases, which fuel two-thirds of U.S. economic activity.
The Commerce Department said private-industry wages and salaries grew $19.6 billion in June, a contrast to May, when they declined $23 billion. Manufacturing payrolls rose $1.5 billion after decreasing $3.9 billion in May.
Spending on durable goods, including new cars, rose to an annual rate of $623 billion in June from $619.6 billion in May.
Personal savings in June were an annualized $214.5 billion, up from $211.6 billion in May.
The savings rate, a figure watched widely by economists that shows savings as a percentage of disposable income, was unchanged from May at 4.1%. That meant Americans were saving 4.1 cents out of each dollar earned.
