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Income, spending rise
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July 30, 1999: 11:05 a.m. ET
Personal income surges 0.7% in June while spending climbs 0.3%
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NEW YORK (CNNfn) - Americans' incomes climbed in June at the fastest pace in seven months, though they spent those earnings at a slower pace and took a touch less out of the bank, the government reported Friday.
U.S. personal income rose a seasonally adjusted 0.7 percent in June, more than the 0.5-percent gain analysts had expected and well above the revised 0.3-percent pace reported for May, the Commerce Department said.
Spending, meantime, climbed a more moderate 0.3 percent, slightly below the 0.4-percent consensus forecast and below the 0.6 percent pace recorded in May. May's figure wasn't revised.
While earnings rose faster than spending, taxes, interest payments and other expenditures pushed the nation's savings rate to minus 1.0 percent in June, slightly better than May's revised minus 1.4 percent, a new record. May's rate was originally reported at minus 1.2 percent.
Some encouraging numbers
"It certainly shows that we're outspending our income, though the fact that the negative savings rate narrowed a bit is encouraging," said Steven Slifer, chief economist at Lehman Brothers in New York. "Consumers have been borrowing to finance their purchases, but they've been borrowing off of increases in capital gains, which is not so bad."
Indeed, Slifer pointed out that many consumers have been borrowing off stock market gains realized in the growing value of their rising portfolios to make purchases rather than paying for those purchases directly from their paychecks. That's made the negative savings rate "a bit distorted," he said.
What's more, the trend in the past four months indicates that incomes are moderating somewhat; personal income growth actually slowed between March and June in comparison to its pace between October and February, Slifer said.
"What we're looking for is the consumer to slow his pace of spending a bit and I think we're seeing evidence of that," he said. "October through February we were spending at a torrid rate, and now it's much more modest."
Moderating income levels?
Part of that was evident in a slowdown in car sales, which kept June's spending rate from rising further, economists said. As for the rise in income levels, much of that gain came from a boost to farmers' salaries through government subsidies handed out during the course of last month.
Farmers were one of the biggest beneficiaries of wage gains in June, according to the Commerce Department's report; farm proprietors' income rose $14.5 billion after a previous decline of $3.3 billion -- partly a reflection of government subsidy checks being received by many of them, the report said. Without the farmer payments, incomes probably rose 0.5 percent.
Income growth is a sign of future business activity because higher incomes mean consumers will be able to spend more. Consumer spending accounts for about two-thirds of the nation's output of goods and services.
The rise in incomes "does not necessarily herald a period of accelerating income growth," said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, N.Y.
Even so, the numbers augmented Thursday's report that wages and benefits rose at the fastest quarterly pace in more than eight years, providing further evidence that higher wages may be on the verge of fueling faster inflation.
Spending on cars and trucks, meantime, declined 2.3 percent in the month, keeping the overall spending rate from rising higher, economists said. Spending on nondurable items such as clothing and recreation rose 0.4 percent, while spending on services rose 0.3 percent.
Concern that robust consumer spending could spur Federal Reserve policy makers to raise interest rates again at their Aug. 24 meeting unnerved bond investors for a second day. The Treasury's benchmark 30-year bond fell 3/8 point, pushing up its yield 4 basis points to 6.11 percent. 
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Commerce Department
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