Consumer spending rose 0.7 percent in June, even though Americans' incomes rose a much more modest 0.4 percent, the government said yesterday.
The Commerce Department said the spending gain followed a 0.1 percent decline in purchases during May. The strength in June came from a rebound in auto sales and higher spending in the services category.
The 0.4 percent rise in incomes was only enough to match the rise in consumer prices last month, which meant that Americans saw no increase in their purchasing power.
For most of the year, moderate increases in wages and salaries have been wiped out by even faster increases in inflation, a pattern that could spell trouble for consumer spending in the months ahead, economists said.
"We are getting fairly reasonable increases in personal income, but the problem is that we have more inflation to contend with than we did last year," said Sandra Shaber, an economist with the Futures Group, a Washington consulting firm.
Shaber predicted that consumer spending, which accounts for two-thirds of overall economic activity, would continue growing for the rest of this year, but at a much slower pace than in the first four years of the current economic recovery.
"Consumer spending is not going to be weak enough to drag us into a recession, but it is not going to be the driving force in the economy like it has been," she said.
Americans' disposable or after-tax income edged down 0.1 percent in June, but this mainly reflected a return to a more normal level following a record 3.6 percent increase in May. After-tax incomes have fallen and then risen sharply this spring because of the impact of unusually high federal tax bills in April.
Americans' savings rate -- savings as a percent of disposable income -- fell to 3.9 percent in June, below the postwar record low of 4.3 percent set for all of last year. The low savings level is another reason economists are not looking for much strength in consumer spending in the months ahead.
In another report yesterday, the National Association of Realtors said sales of existing single-family homes fell 6.1 percent in June, the biggest decline in five months. Analysts blamed the decline, which left sales at an annual rate of 3.54 million units, on the sharp run-up in mortgage rates during the spring.
The report on incomes and spending reflected revisions that showed, among other things, that Americans spent more money on services -- including such things as rentals of videocassette movies -- than previously believed.
The department said the 0.7 percent rise in personal consumption spending was the strongest increase since a 0.8 percent gain in April.