Originally created 08/29/98

Personal income up 0.5 percent



WASHINGTON -- Americans' personal income climbed in July but they spent less for the first time in more than two years.

The Commerce Department reported Friday that incomes rose by 0.5 percent in July, to a seasonally adjusted $7.14 billion.

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

Spending on durable goods -- expensive items from cars to computers expected to last three years or more -- dropped a dramatic 5.2 percent 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, not settled until the end of the month, may have affected dealers' inventories.

"Auto sales had surged in May and June with extensive rebating and other incentive programs. The expiration of those programs and the strike damped sales considerably in July," said economist Lynn Reaser of NationsBank in Jacksonville, Fla.

Consumer buying power remains high, analysts note. Wages and salaries, which account for more than half of Americans' income rose 0.6 percent 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 percent in July and farmers' income was down 5.5 percent.

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

Financial troubles in Asia, the bombing of U.S. embassies in Africa -- and now a crisis in Russia that has halted currency markets there this week -- have caused consumer confidence to slip in July and August.

On Thursday, the Dow Jones industrial average dropped more than 350 points. It had lost nearly another 80 points at midday today.

And the government reported this week that the gross domestic product -- measuring the total output of American goods and services -- rose at an annual rate of just 1.6 percent in the spring, a dramatic slowdown from a 5.5 percent growth rate in the first three months of the year.

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

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

In July, disposable personal income rose 0.5 percent -- the same increase as the overall income figure. Combined with lower spending, that pushed the savings rate back up to 0.8 percent.