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Americans' incomes rose faster than their pace of spending in March, the government said Friday, offering fresh evidence that low unemployment is forcing employers to pay more to attract and keep workers.

Spending rose 0.5% in March following a revised 1.4% increase in February, while incomes rose a larger-than-expected 0.7% in March following a 0.4% increase in February, the

Commerce Department

reported. It was the first time in five months that incomes grew at a faster rate than spending.

The data strengthens the belief that the combination of low unemployment and heavy business activity are causing employers to increase wages and salaries in an attempt to find and keep employees amid a shrinking pool of workers. That is causing fears of inflation because businesses might have to pass on those costs in the form of higher prices.

On Thursday, the Labor Department released

data showing that overall employee costs, comprised of wages and benefits, rose 1.4% in March -- the strongest growth since 1990.

Although the Commerce Department data Friday showed that income outstripped spending in March, the overall trend shows that American consumers, who account for about two-thirds of the nation's

gross domestic product

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, have been relentless spenders. Officials at the

Federal Reserve

have repeatedly warned that demand for goods and services is outstripping supply, which could lead to a broad outbreak of inflation.

So far, measures of inflation have not shown any sharply higher trends because companies have kept prices in check due to gains in worker productivity. Workers, helped by new technologies, have been able to produce more goods and services in the same amount of time, allowing prices to stay stable even as their salaries rose. But Fed Chairman

Alan Greenspan

has warned that productivity gains might not be enough to offset the strength in demand.

In an attempt to curb demand and slow overall economic growth, the Federal Reserve has raised its benchmark overnight lending rate five times, in 0.25-percentage-point increments, since last June. In theory, higher interest rates serve to slow economic growth by making it harder for consumers and businesses to borrow and spend.

The Fed's rate increases have pushed up most other interest rates, such as those on mortgages and credit cards. But consumers, rich with higher wages, stock market gains, and higher prices for assets such as homes, have remained extremely confident and continued to spend freely.

Overall the pace of consumer spending in the U.S. rose to a $6.7 trillion annual pace in March, while incomes rose to an $8.1 trillion annual pace. That pushed the U.S. savings rate -- the portion of disposable income that Americans store away -- up to 0.4%, only slightly better that February's all-time savings-rate low of 0.2%.

Economists worry that the low savings rate indicates that consumers would be ill prepared if the economy were to turn downward or if the stock market stagnates, which could lead to a rash of personal bankruptcies and other financial problems.