Incomes Rise, but Spending Falls in July--the First Drop Since ’96

Americans’ personal income climbed in July, but they spent less for the first time in more than two years, the government said Friday.

Incomes rose by 0.5% in July to a seasonally adjusted annual rate of $7.14 trillion, the Commerce Department said.

Personal consumption expenditures, however, fell 0.2%--the first decline since June 1996--to a seasonally adjusted annual rate of $5.8 trillion.

Spending on durable goods--expensive items from cars to computers expected to last three years or more--dropped a dramatic 5.2% in July, offsetting smaller increases in spending for nondurable goods and services.

Declining purchases of motor vehicles more than accounted for the decrease in spending, the Commerce Department said. A strike at General Motors Corp., not settled until the end of the month, may have affected dealers’ inventories.

Consumer buying power remains high, analysts note. Wages and salaries, which account for more than half of Americans’ income, rose 0.6% in July, reflecting continued low unemployment.

But factory wages and farmers’ income fell, indicating that economic crises abroad may be affecting American commerce.

While most other income categories--including service and distributive industry wages, business owners’ income, rents and transfer payments such as Social Security--were up, manufacturing wages dropped 0.5% in July and farmers’ income was down 5.5%.

The General Motors strike accounted for about $7.5 billion in lost wages in July and $3.5 billion in June, the Commerce Department said.

In June, disposable, or after-tax, personal incomes rose by only 0.2%, but consumer spending remained high, rising at a 0.6% clip.

That combination pushed the nation’s personal savings rate in June down to a revised 0.1%, the lowest since the government began keeping monthly statistics in 1959.

In July, disposable personal income rose 0.5%. Combined with lower spending, that pushed the savings rate back up to 0.8%.

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Personal Income

Seasonally adjusted annual rate, in trillions of dollars:

July: $7.14 trillion

Source: Commerce Department

Personal Spending

Seasonally adjusted annual rate, in trillions of dollars:

July: $5.80 trillion

Source: Commerce Department