Personal income tumbles, spending up

NEW YORK (CNNMoney.com) -- Personal income fell in June after surging in the previous month on government stimulus, while spending by individuals increased, the government said Tuesday.

The Commerce Department said personal income fell 1.3% in June, compared with a revised 1.3% increase in May, when government stimulus boosted social benefits payments and reduced taxes.

The June decrease was the largest drop in personal spending since January 2005, when incomes fell 2.3%. It was also larger than the 1% decrease analysts surveyed by Briefing.com had forecast.

Excluding the impact of the government's economic stimulus, incomes eased 0.1% in June and were essentially flat in May, according to the report.

Incomes are expected to remain depressed due to the dismal job market. "With the continued weakness in the labor market we do not expect strong gains to return for some time," said Adam York, an economist at Wells Fargo Economics Group.

Spending by individuals edged up 0.4% in June after a 0.1% increase in May. Analysts had forecast a 0.3% rise.

Taking inflation into account, however, the spending rate fell by 0.1% in June.

Last week, the government reported that consumer spending fell 1.2% in the second quarter.

"Consumption was clearly weak in the second quarter, but the third quarter may prove stronger as consumers flocked to auto dealers in July," York said.

Meanwhile, personal saving as a percentage of disposable personal income was 4.6% in June, down from 6.2% in May.

Despite the decrease in June, analysts say the savings rate is likely to continue rising as consumers reduce spending and recover from the recession.

"We expect the saving rate will trend higher over the medium term as consumers work to repair their balance sheets," York said.

An earlier version of this story had erroneous data for the personal income figure. CNNMoney.com regrets the error.