|
Income, spending gains ease
|
 |
June 30, 2000: 12:01 p.m. ET
May personal income and spending increases both trail month-earlier rates
|
NEW YORK (CNNfn) - Personal income and spending grew at a moderate pace last month, helping prices to remain in check, according to government reports Friday that provided the latest sign that consumers may be taking their foot off the economy's accelerator.
The Commerce Department report showed personal income in May rose slightly more than expected, but still remained below April gains. Spending grew at about half the rate of income. In addition, the April income and spending figures were revised lower.
Concerns about an overheated economy prompted a series of interest rate hikes by the Federal Reserve culminating in a half-percentage-point hike at its May meeting. But recent economic reports that showed signs of a slowing economy led the Fed to refrain from raising rates at this week's meeting.
Friday's report and other signs of a second-quarter economic slowdown may not be enough to stop further rate hikes though, Charles Lieberman, chief economist with First Institutional Securities, told CNNfn's Before Hours program Friday. The economy appears to be slowing down only when it is compared with the very hot levels of the previous nine months, he said.
 "The economy absolutely slowed down in the second quarter, there's no question," he said "But the police officer who stops me for doing 70 in a 55 zone isn't going to be impressed if I tell him I just slowed down from 90." (348KB WAV) (348KB AIFF)
But other economists believe this report is further evidence the Fed may again pass on raising rates in August.
"There is good financial-market news everywhere you look in this report," said Sherry Cooper, chief economist at BMO Nesbitt Burns Inc. She pointed out that discretionary durable goods spending has accounted for the drop in spending and that income data were lifted more by Social Security payments than wage gains. Those facts militate against the inflationary pressures that worry Fed officials.
"Bond and equity investors alike will take heart from the reinforcement that the Fed may stay on hold," she said.
Stock and bond markets were mixed in midday trading after the report, though.
Others said economic reports to come will be the real key to Fed action, not the results from the second quarter.
"It is just too soon to be sure that the second-quarter slowdown will be sustained," said Ian Shepherdson, chief U.S. economist for High Frequency Economics. "The level of consumer confidence is still consistent with 5 percent spending growth."
Personal income advances ahead of spending gain
The Commerce Department report showed personal income rose 0.4 percent in the month, slightly more than expected. A survey by Briefing.com forecast that personal income would show a 0.3 percent rise. April's increase in income was revised down to 0.6 percent from the originally reported 0.7 percent gain.
 Personal spending gained 0.2 percent, in line with expectations. The spending gain in April was revised down to 0.2 percent, half the 0.4 percent first reported for the period a month ago.
The percentage gain in personal spending is the smallest since a similar 0.2 percent rise in November 1998, when measured using current dollars.
The report's implicit price deflator, the one inflation indicator in the report, was virtually unchanged in May for the second straight month, after steeper gains earlier in the year. The deflator rose to 106.88 from 106.86 in April and 106.81 in March. The indicator had shown gains of close to half a point in both of the previous two months, when inflation concerns were more pronounced.
One sign of a stronger-than-expected economy came from the National Association of Purchasing Management-Chicago, which reported that the Chicagoland Business Barometer rose to a seasonally adjusted 56.8 in June from 53.9 in May. The Briefing.com survey called for that index to fall to 53.0 in June.
An index below 50 signals a slowing manufacturing economy, while a reading above 50 suggests expansion. But once again, the report contained some good news for inflation hawks, as the prices-paid index fell to 63.6 in June from 64.4 in May. And the employment component of the barometer fell to 47.8 from 49.8 in May.
The rate of personal savings rose slightly in the month to 0.6 percent of disposable income from 0.4 percent in April. 
|
|
|
|
|
 |
|
