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U.S. Personal Income Rises 0.9% in Month : Consumer Spending Up 1.7%, U.S. Reports

March 20, 1987|Associated Press

WASHINGTON — Personal income and consumer spending both rose last month, the Commerce Department reported Thursday.

The department said that personal income rose by 0.9% in February, a sharp jump from a 0.2% increase in January.

After-tax income rose by 1.2% compared to a 0.9% increase in January. Both of the February income figures marked their biggest rise since last April.

Consumer spending climbed 1.7% in the same period, reversing a record decline of 2.0% in January.

Some economists called the growth encouraging, but there were cautions that all is not as well as the numbers suggest.

The Commerce Department noted that the increase in disposable income was due in part to taxpayer lags in filing W-4 forms under the new tax law. Many are having too little money withheld from their paychecks, and those amounts will eventually have to be made up.

Had Distorting Effect

The income figures were also helped by farm subsidy payments, which boosted farm income an annualized $12.2 billion over January levels. Without the subsidies, farmers would have shown a loss of $300 million, the department said.

And the spending increase was calculated from a sharply depressed January level. February spending remained below December levels.

"It looks good, but it really isn't," Michael K. Evans of Evans Economics Inc. said of the report. "The gains in personal income are really not that spectacular."

Excluding the farm subsidies, he said, personal income growth was modest. And personal spending averaged over the last three months, to account for the wide swings at year's end, showed an increase of only about 0.5%.

"That's indicative of where the economy really is," Evans said. "Both consumption and real income are growing very slowly, much more slowly than they did last year."

The spending figures also reflect huge fluctuations in auto sales because of the new tax law, said Lawrence Chimerine of Chase Econometrics in Bala-Cynwyd, Pa. Many car buyers shifted their purchases from January to December, when sales taxes were deductible. That sent December figures skyrocketing and January figures plummeting.

The savings rate, which shows savings as a percentage of disposable income, fell to 3.6% from a 4% rate in January.

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