Saturday, May 30, 1998

Americans dip into savings to maintain spending

By DAVE SKIDMORE / Associated Press Writer

WASHINGTON (AP) -- Americans enjoyed solid advances in their incomes last month, but they increased spending at an even faster rate and cut back on saving. That can't last, economists said.

Plus, in a sign the Asian crisis is pinching, the Commerce Department said Friday that factory payrolls declined 0.2 percent.

"Some restraints are beginning to appear," said economist Lynn Reaser of NationsBank Corp. in Jacksonville, Fla.

Overall, personal income increased 0.4 percent in April, as did income's largest component -- wages and salaries. A 0.7 percent rise in service industry wages helped offset the decline in manufacturing, where some industries have been hurt by the loss of export sales to economically troubled East Asia.

Tax payments surged 0.6 percent in April, helping the federal government post a record budget surplus for the month. After-tax income, adjusted for inflation, rose just 0.2 percent.

Personal consumption expenditures, meanwhile, jumped 0.5 percent for the second consecutive month.

The fact that spending advanced more rapidly than income produced the fourth drop in the national savings rate -- savings as a percentage of after-tax income -- in five months.

"The decline in the savings rate to 3.5 percent puts it near a record low level," said economist Gerald D. Cohen of Merrill Lynch. "We do not expect it to fall further. Thus, we think that spending growth is not at a sustainable level."

The news on savings came as the Clinton administration prepared for next week's two-day National Summit on Retirement Savings, aimed at encouraging Americans to save more.

Analysts said the savings rate has been depressed during the past year because of the way the government accounts for Americans spending part of their stock market gains. The spending counts as reduced savings, but gains plowed back into the market don't count as new saving.

The market faltered this week, and economists were wondering how much longer it can be depended upon to fuel consumer buying power.

"Swings in the stock market have a very pronounced effect on consumer spending," Reaser said.

This week, stocks tumbled in reaction to renewed turmoil in East Asia and India and Pakistan's nuclear tests. The Dow Jones industrial average suffered its worst one-day drop since January on Tuesday, 151 points. It bounced back somewhat on Thursday but dropped 70 points Friday to close at 8,900, a 2.4 percent loss for the week.

In addition to wages and salaries, income gains also were recorded for business owners, farmers, transfer payments such as Social Security and welfare, interest, dividends and rental income.

Spending was strongest for durable goods, big-ticket items such as autos and appliances expected to last three or more years. It rose 0.7 percent. Nondurable-goods purchases increased 0.6 percent and spending on services rose 0.4 percent.