Incomes Up, But Spending Slows

Economy Sizzles, UP,
AP / CBS
Personal income rose in April at the fastest pace this year while people's spending slowed after a big jump in March, the government reported Friday.

"The economy looks pretty darn good in the first half of 2005," David Wyss, chief economist of Standard & Poor's, told CBS Radio News.

The Commerce Department reported that incomes rose by 0.7 percent last month, reflecting a big jump in hiring by private sector businesses. The increase followed two 0.5 percent gains in February and March and was the strongest showing since a 4 percent jump in December that had been fueled by a big dividend payment from computer software giant Microsoft.

Consumer spending rose 0.6 percent in April, down from a big 0.9 percent jump in March. Analysts expect the economy to keep moving ahead at a good clip this year in part because they believe that rising employment will provide support for consumer spending.

"Consumer spending surprised us by being a little slower than expected," said Wyss. "A lot of that, however, we think is caused by the early Easter."

The new report showed that inflation pressures remained contained with an inflation gauge preferred by the Federal Reserve showing that prices outside of food and energy rose by 1.6 percent in April, compared to the same month a year ago. That was down from a 1.7 percent increase for the 12 months ending in March.

The government reported on Thursday that the overall economy grew at a 3.5 percent rate in the first three months of this year, a significant upward revision from the initial estimate a month ago that the economy was growing at a 3.1 percent growth rate.

This upward revision in the gross domestic product and a string of better-than-expected reports in April have eased concerns that were raised by a series of sub-par reports on March activity. Economists had worried that this year's oil shock, which saw crude oil prices hit new record highs, could trigger a period of prolonged economic weakness.

Disposable incomes, the amount that people have left to spend after paying taxes, rose by 0.5 percent in April, up slightly from two months of 0.4 percent gains.

Even with that increase, the personal savings rate dipped 0.4 percent in April, the lowest level in more than three years. It was the first time that the savings rate fell into negative territory since it came in at minus 0.2 percent in October 2001 during the country's last recession.