Personal income rose 0.5 percent in March, about the same as in January and February, but personal spending tumbled as consumers cut back significantly on their purchases of goods, the Commerce Department reported yesterday.
The drop in spending, plus a slower pace for business investment and a continuing drag from a growing trade deficit, probably means that total output -- the gross national product -- rose at about only a 2 percent annual rate in the first quarter, analysts said. The GNP figure will be released by Commerce today.
Some of the decline in spending could be related to the unusually slow rate at which the Internal Revenue Service is sending out tax refunds this year. Because of computer problems, the IRS is so far behind with refunds that tax payments were inflated at an annual rate of $29 billion in February and $52 billion in March, Commerce said.
This rise in personal tax payments turned the $16 billion March increase in personal income into a $13 billion drop in disposable income, a 0.5 percent decline. For March, personal income was received at a seasonally adjusted annual rate of $3,155.9 billion. Disposable income was received at a $2,636.8 billion rate.
While refunds, which in the latest figures average $840 for each tax return, are a factor in consumer spending this time of year, the delay probably has not had a major economic impact, said economist Lawrence Chimerine of Chase Econometrics. "While we may have gotten a little effect from tax refunds, we just happen now to be in a period of slower growth."
Even with the March drop in personal consumption spending, which constitutes about 60 percent of GNP, the level for the first quarter was still well above that for the fourth quarter. Analysts said that that portion of GNP probably rose at about a 5 percent annual rate in the first quarter after adjustment for inflation.
However, most of that improvement really reflects growth that occurred during the fourth quarter, with spending in December much higher than it was in October. Such a gain during a quarter means that even if growth ceases at that point, the following quarter's average will be higher than that of the quarter in which the gains occurred.
In the current case, for instance, personal consumption spending in March was only slightly higher than it was in December and January after adjustment for inflation, analysts estimated.
Wages and salaries, reflecting strong employment gains, rose $14.4 billion in March, to a level of $1,894.9 billion. That was up from about an $8 billion gain in both January and February.
Meanwhile, the Federal Reserve Board reported that the nation's factories, mines and utilities used 80.8 percent of their available production capacity in March, the same rate as in February. The operating rate had fallen 0.4 percentage point that month from a January rate of 81.2 percent.