May 2, 1995 in Nation/World

Incomes And Spending Increase In March Farm Subsides Boost Incomes; Spending Shows Economic Expansion Isn’t Running Out Of Steam

Associated Press

Boosted by farm subsidies, the income of Americans rose more strongly in March than it had in two months and spending nearly kept pace.

The Commerce Department said Monday that income climbed 0.6 percent in March, up slightly from February’s increase, while spending rebounded from its first decline in nearly a year to rise 0.5 percent.

Analysts said the report suggests welcome moderate growth and is a sign the consumer-driven economic expansion has not run out of steam.

“The consumer is still alive and well and certainly not going into a shell,” said economist Robert Dederick of Northern Trust Co. in Chicago. “The consumer isn’t shutting off the spending valve entirely. It’s encouraging as we head into the second quarter.”

Moreover, Americans are saving at a higher rate than they have in more than two years and that could signal more spending ahead.

In another report, the Commerce Department said weakness in housing sank March construction spending to its lowest level in four months. Construction spending dropped 0.4 percent, marking the first time it has fallen three straight months in nearly three years.

Also, the ability of the typical American family to buy an existing home dipped in the first quarter as mortgage rates hit a recent peak, the National Association of Realtors said.

In another sign of an economic slowdown, the National Association of Purchasing Management said U.S. manufacturing grew modestly in April and price increases for materials eased considerably. The group’s closely watched index has advanced steadily over the last 20 months, but the rate of growth has slipped this year.

The stock market was lower in mid-afternoon, with the Dow Jones industrial average off about 10 points.

The government reported Friday that its broadest gauge of economic activity slowed dramatically in the first three months of 1995. Gross domestic product rose 2.8 percent at an annual rate, a little more than half as rapidly as the booming 5.1 percent rate in the fourth quarter last year.

On Monday, the Commerce Department revised its spending figure for February to show a drop of 0.2 percent, instead of a previously estimated rise of 0.1 percent. The February spending decline was the first since 0.3 percent in April 1994.

Consumer spending, which represents twothirds of the nation’s economic activity, has tailed off since last year’s spree.

“We assume that second-quarter spending will be a bit stronger, but April was probably about flat,” economists for Merrill Lynch & Co. said in a statement.

Analysts credit the slowdown at least in part to the Federal Reserve, which raised interest rates seven times in the 12 months ended Feb. 1.

The March increase in personal income made it the fourth straight gain after being unchanged in November. The last time income rose more rapidly was in January, when it climbed 0.8 percent.

Farm subsidies in March and auto industry bonuses the month before helped inflate the total.

Private wages and salaries, the most closely watched component of income, increased just 0.2 percent in March and 0.4 percent in February.

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