YOU ARE HERE: LAT HomeCollections

Income Climbs 0.4%, Spending Increases 1.1% : Advance in Consumption Heavily Weighted by Surge in New Car Sales

September 20, 1986|Associated Press

WASHINGTON — Americans' personal incomes climbed 0.4% in August while consumer spending, bolstered by a surge in car sales, shot up an even faster 1.1%, the government reported Friday.

While the spending gain was the biggest this year and the income rise was the largest since April, many analysts said the figures were not as strong as they appeared on the surface.

The Commerce Department said the 0.4% rise in income followed a 0.3% increase in July and no change in June. This represented a downward revision for July, which originally had been reported as a 0.5% advance.

Some analysts expressed concern at the weak showing for July and June.

"This report is essentially weak because the downward revisions were substantial," said Michael Evans, head of a Washington forecasting firm. "For the past three months, wages and salaries have been rising at an annual rate of about 5%. That is not enough to support strong economic growth."

Expectations Reduced

Evans said the income report was forcing him to reduce his expectations of overall economic growth in the current July-September quarter to 2% from 2.8%, as measured by growth in the gross national product.

Although this would be more than double the barely perceptible 0.6% annual growth rate in the second quarter, it would be less than half the economic rebound that the Reagan Administration is forecasting.

The 1.1% rise in personal consumption spending followed a 0.4% increase in July and was the biggest advance since a 1.9% jump last December.

But many analysts were unimpressed because the increase was almost totally concentrated in auto sales, a fact that they said would probably reduce spending in coming months.

John Hagens, an economist with Chase Econometrics, said the surge in car sales was in response to cut-rate financing incentives being offered by auto makers trying to reduce huge stockpiles of unsold cars.

Depress Growth

This means that the increased sales won't translate into increased production, which would benefit growth in the months ahead. Rather, Hagens said, the sales would probably depress growth in the last part of the year as consumers cut back on spending to build up their depleted savings accounts.

The report said the savings rate plummeted in August to 3.1% of disposable income from 4% in July. Economists said a savings rate this low very likely will lead to spending cutbacks in the months ahead.

Personal consumption spending, which includes virtually all outlays made by consumers except interest payments on debt, rose at an annual rate of $32.1 billion in August, almost three times faster than the July advance.

Purchases of durable goods, items expected to last three or more years, were up $26.9 billion, compared to an increase of $1.7 billion in the month before, because of auto sales.

But purchases of non-durable goods and services were up much more modest amounts of $2 billion and $2.4 billion, respectively.

Los Angeles Times Articles