Inflation light flashes with surge in incomes Wages and salaries rose in February, as did spending

April 01, 1997|By BLOOMBERG NEWS

WASHINGTON -- American incomes surged in February, led by gains in wages and salaries, the government reported yesterday in a reminder that Federal Reserve Chairman Alan Greenspan's concern about wage-driven inflation may prove to be on target.

Personal income rose a greater-than-expected 0.9 percent in February month while spending increased 0.3 percent, the Commerce Department said. Wages posted the largest monthly gain since April 1994.

In other signs that inflation may rise, manufacturers in the Chicago and New York regions said in a separate report that their material costs rose in March.

Stocks tumbled for a second trading day in a row amid concerns that rising prices and continued growth increase the odds of more Fed interest rate boosts, which could hurt corporate profits.

"You're going to see an increase in spending in the months ahead," said Dean Witter Reynolds Inc. economist William Sullivan. "This is a vibrant economy."

The Dow Jones industrial average fell 157.11 points to close at 6,583.48, exceeding the decline of more than 140 points recorded Thursday, the last day of trading before the Easter holiday. The Standard & Poor's 500 index slid 4.2 percent over the last two trading days, the worst decline since Iraq invaded Kuwait in August 1990.

The rate on the three-month Treasury bill, meanwhile, fell more than 4 basis points as investors shifted assets out of stocks and into cash-equivalent holdings in what analysts described as a "flight to quality."

February's income gain comes on the heels of a January spending spree.

While incomes rose a revised 0.4 percent in January -- compared with an original estimate of 0.3 percent -- spending jumped a revised 1.0 percent. That was previously reported as a 0.7 percent increase.

Consumer spending in the first quarter ending yesterday was on track to grow at a 5 percent annual rate, said John Ryding, senior economist at Bear Stearns & Co. in New York.

That will help push overall growth in the first quarter above 3 percent, he said, and may be too high for many Fed officials who already are concerned about the 3.8 percent annual rise in the gross domestic product in last year's fourth quarter.

Americans' personal outlays make up roughly two-thirds of economic activity.

Last week, when the Fed decided to push up the overnight bank lending rate by a quarter point to 5.50 percent, central bankers cited "persisting strength in demand" that could eventually cause economic imbalances and rouse inflation.

The Commerce Department also said disposable income, money left over after taxes, increased 0.8 percent in February. The savings rate rose to 5.5 percent from January's 5.1 percent, the highest since 5.6 percent last September.

The government said February retail sales showed demand was strong at apparel, department stores and auto dealers, and some retailers are optimistic that Americans will keep on spending.

"February is generally not a gangbusters month, but we're happy," said Beverly Butler, a spokeswoman for retailer Gap Inc.

Gap's sales for the four-week period ended March 1 rose 13 percent to $304 million from last year, though most of those gains came from newly opened stores.

Two regional reports yesterday showed manufacturing continues to expand amid rising prices.

The Purchasing Management Association of Chicago said its monthly index of regional manufacturing activity rose to 57.5 in March from 56.2 in February.

The New York chapter of the National Association of Purchasing pTC Management said its regional business conditions index remained above 50 in March, denoting growth.

Pub Date: 4/01/97

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