U.S. Incomes Outstrip Spending

<i> From Times Wire Services</i>

Americans’ personal incomes galloped ahead of their spending in June, and new-home sales rose 3.1% as buyers rushed to beat slowly rising mortgage rates, all signs of the economy’s vitality, according to government figures released Friday.

Incomes rose a faster-than-expected 0.7% last month, while spending rose 0.3%, slightly less than expected, the Commerce Department said.

New-home sales rose to a seasonally adjusted annual rate of 929,000, keeping them on track to beat last year’s record of 886,000, the department said in a separate report. The median price of a new home--the price at which half the homes sold for less and half for more--rose 4.7% in June to $157,000, up from May’s $149,900.

Because consumer spending accounts for more than two-thirds of the nation’s output of goods and services, growth in incomes keeps the current economic expansion on track for a record early next year.


“Once they got the money in their paychecks, people went out and spent it,” said Joel Naroff, president of Naroff Economic Advisors in Holland, Pa.

That confidence shone through in the University of Michigan’s national index of consumer sentiment for July. Although it fell to 106 this month from 107.3 in June, the index has remained above 100 for nine consecutive months.

Manufacturing also showed a new sign of strength. The National Assn. of Purchasing Management-Chicago’s regional factory index rose to 60.5 this month from 60 in June.

June’s income increase was the largest since a 0.9% gain in November. The monthly increase in spending, restrained by a seasonal pause in the growth of auto sales, was the smallest since a 0.1% rise in November.

Economists cited several factors for the moderation in spending, including a recent rise in interest rates and a decline in mortgage refinancing. People who refinance homes end up with extra money, which leads to higher spending, they said.

In June, the savings rate was negative 1%, an improvement over the record low of negative 1.4% set in May.