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Personal income, spending both tick up

Consumers have more money in their pockets, but they are spending more, too, the government reports.

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By Catherine Clifford, CNNMoney.com staff writer

The airline fee I dislike most is:
  • Fuel surcharge
  • Baggage fee
  • Pillow and blanket charge
  • Coffee and water charge

NEW YORK (CNNMoney.com) -- Personal income rose slightly in June after surging the previous month on the first wave of economic stimulus checks, the government reported Monday.

The Commerce Department said individual income increased by 0.1% in June after a revised 1.8% jump in May. Economists polled by Briefing.com were expecting a 0.1% decrease in June.

Personal spending in June increased by 0.6%, which was more than the 0.5% increase that economists polled expected.

However, the spending jump was driven by inflation. Individual spending, when adjusted for inflation, actually fell by 0.2% following a 0.3% increase in May, according to the report.

"Inflation is taking a pretty big bite out of the actual dollars," said Adam York, economic analyst at Wachovia. "It means that we are spending more dollars on gas, food, and things that are increasing in cost."

Another measure in the report that tracks prices that consumers pay on goods and services, excluding food and energy, rose by 0.3% over the previous month.

In addition, the core personal consumption expenditures index - a year-over-year inflation gauge that excludes food and energy - rose to 2.3% from 2.0% a year earlier. Core PCE was 2.2% in March, April and May. The Federal Reserve is widely believed to prefer that core PCE stay in a range of 1% to 2%.

Disposable income declines

While personal income rose in June, disposable income fell by 1.9%, after spiking up by 5.7% in May. And in inflation adjusted dollars disposable income decreased by 2.6% after jumping 5.2% in May.

Disposable income is what consumers have left over after they pay taxes.

The drop-off in disposable income tracks a monthly decline in the amount of economic aid distributed by the federal government.

The Treasury Department sent out $48.1 billion in economic stimulus payments in May and $27.9 billion in June.

"The pattern of changes in income reflect the pattern of payments associated with the Economic Stimulus Act of 2008," according to the report.

Excluding stimulus rebate payments, disposable personal income actually increased by 0.3% in June after increasing by 0.4% in May.

"There is no way that the underlying trend increase could make up for the decline in the tax rebate payments," said York. To top of page

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