Incomes Log Biggest Drop in 4 Years Despite Signs of Stability

Personal income took its steepest dive in four years in June, according to government data released Tuesday, digging an even deeper hole for people beset by rising unemployment even as other parts of the economy show signs of stability.

The 1.3 percent drop was more than analysts had expected as employers slashed jobs and cut back on employee work hours. It also reflected the diminishing impact of federal stimulus efforts, including one-time $250 federal payments to millions of people who receive Social Security benefits. That was the largest decrease in personal income in four years, analysts said.

Wage and salary income dipped 0.4 percent, according to the data. That was the largest decline since March, according to Wells Fargo. "With the continued weakness in the labor market we do not expect strong gains to return for some time," the report said.

Consumer spending rose 0.4 percent in June, more than forecast by analysts. But that was largely because consumers spent more on increasingly expensive staples such as gasoline, analysts said. After adjusting for inflation, spending fell by 0.1 percent.

People appear willing to spend with the right incentives, such as the government "Cash-for-Clunkers" program, analysts said. The program, which gives vouchers worth up to $4,500 to those who trade in gas-guzzling cars for more fuel-efficient models, has been so popular that it is at risk of running out of money.

"But reduced wealth, high debt, tight credit and a weakening labor market are all weighing on consumers," said Nigel Gault, chief U.S. economist for IHS Global Insight. "Consumers remain a missing link in hopes for strong recovery."

The rise in spending meant that people had less to stash away, and the personal saving rate fell to 4.6 percent, down from 6.2 percent in May, according to the Commerce Department.

Beleaguered consumers have also been turning to bankruptcy courts for relief. The number of consumer bankruptcy filings rose 8.7 percent to 126,434 in July compared with the previous month, according to the American Bankruptcy Institute. That is the highest monthly total since October 2005. "Rising unemployment on top of high pre-existing debt burdens is a formula for higher bankruptcies through the end of this year," said Samuel J. Gerdano, the institute's executive director.

Meanwhile, pending home sales increased for the fifth consecutive month in June, according to data from the National Association of Realtors. The index, which is considered a predictor of future home sales, rose 3.6 percent compared with the previous month.

The improvement was broad-based with the every part of the country seeing improvement. In the South, which includes the Washington region, the index rose 7.1 percent.