Originally created 08/28/99

Personal income edges up; spending rises faster



WASHINGTON -- Americans' income crept up in July, while consumer spending rose faster but not at the frenzied pace of earlier this year.

The Commerce Department said Friday that personal income -- which includes wages, interest and government benefits -- rose a slower-than-expected 0.2 percent last month, the smallest gain this year.

The shortfall from expected growth "was totally due to the timing of farm disaster relief subsidy payments, which plunged 54 percent in July after soaring 105 percent in June," said First Union's chief economist David Orr.

Excluding the effects of those payments, income would have grown 0.5 percent in July -- in line with many analysts' expectations, Orr said.

Wages rose a solid 0.7 percent in July, following a 0.5 percent gain in June.

In June, overall personal income shot up 0.7 percent, boosted by wage gains but mostly reflecting that hefty increase in disaster payments to farmers.

Consumer spending, meanwhile, rose 0.4 percent last month, slightly less than many analysts had expected but a little more brisk than the 0.3 percent increase in June.

Still, July's spending increase was less exuberant than gains earlier in the year. In February, spending rose 0.9 percent; in March and April, it went up 0.6 percent; and in May 0.5 percent.

"There's a bit of a slowdown in the pace of spending. How many cars can a person buy?" said Richard Yamarone, senior economist with the Argus Research Corp., an independent research firm. "But consumers aren't tapped out, they'll continue to spend but at a slower pace."

On Tuesday, the Federal Reserve bumped up interest rates by a quarter of a point for the second time this summer, making borrowing more expensive. The Fed did this to slow the economy and keep inflation in check. The Fed also hinted that no additional rate increases may be needed this year unless the economy showed signs of overheating or if inflation flared.

Because consumer spending has repeatedly outpaced incomes, the nation's savings rate -- savings as a percentage of after-tax income -- has set a string of record lows this year, with the lowest a negative 1.5 percent in May.

In July, the savings rate was better: minus 1.4 percent.

A major reason for the negative savings rate, economists say, is the strong stock market is boosting Americans' net worth and making them more comfortable about dipping into savings to pay for their spending sprees.

Spending on durable goods -- big-ticket manufactured items expected to last at least three years, such as washing machines and cars -- rose 0.2 percent in July, compared with a 0.1 percent gain in June.

And, spending on nondurable products, such as food and fuel, went up 0.1 percent, slightly less than the 0.2 percent increase the month before.

On Thursday, the government reported that the nation's economic growth slowed in the second quarter of this year, held back by a swollen trade deficit. But consumers continued to spend briskly, though not at the torrid pace that they did in the first quarter.

Consumer spending in the second quarter rose at an annual rate of 4.6 percent. That was brisker than estimated a month ago, but slower than 6.7 percent pace of spending in the first quarter. Consumer spending accounts for two-thirds of total economic activity.