Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: FRIDAY, December 3, 1993 TAG: 9312030111
SECTION: BUSINESS PAGE: B-5 EDITION: METRO
SOURCE: Associated Press
DATELINE: WASHINGTON LENGTH: Medium
Consumers spent liberally in October, especially for big-ticket items such as automobiles and appliances. New homes also sold briskly, although more slowly than the month before, when sales soared to a four-year high.
"People are certainly willing to spend whatever increase in pay they get and more," said economist Sandra Shaber of The WEFA Group of Bala Cynwyd, Pa. "It's starting to feel like a real recovery."
Personal income rose 0.6 percent, the third increase in a row, to a seasonally adjusted annual rate of $5.47 trillion, the Commerce Department said Thursday.
Consumer spending advanced for the seventh consecutive month, rising 0.8 percent to a $4.47 trillion annual rate.
The Commerce Department said new home sales fell 6.5 percent to a seasonally adjusted annual rate of 679,000 in October. But sales remained well above last year's pace and the decline followed a 14.9 percent surge in September.
Consumer spending - which depends on job and income growth - accounts for roughly two-thirds of the economy. The big October advance supports analysts' predictions of a fourth-quarter economic growth rate of more than 4 percent. That would more than double the average growth of 1.8 percent during the first nine months of the year.
However, economists warned that consumers are borrowing and dipping into savings for a portion of their spending power and probably will need to retrench somewhat after the holidays.
"Consumers are in better spirits, and that will keep the spending good through the important holiday season. But afterward I think there will be a bit of a breather," said economist Stuart G. Hoffman of PNC Bank Corp. in Pittsburgh. "The economy won't go into neutral, but it will throttle back a bit."
Nevertheless, Thursday's positive economic news flustered financial markets. It supported the growing belief that the Federal Reserve will nudge short-term interest rates higher early next year to quell any chance of inflation reigniting.
October income gains were driven partly by an increase in farm subsidy payments but also by a healthy 0.5 percent gain in wages and salaries.
Spending was strongest, up 3.1 percent, for durable goods, items from washing machines to pickup trucks expected to last three or more years. It rose 0.8 percent for nondurable goods and 0.4 percent for services.
Because spending outpaced income gains, the nation's savings rate - savings as a percentage of income - fell. It was 3.7 percent in October, down from 3.9 percent in September and 4.1 percent in August.
Other areas recording gains included business owners' income, rental income, interest income and transfer payments such as unemployment benefits.
Real disposable income - inflation-adjusted income after taxes - rose 0.2 percent in October.
by CNB