Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: TUESDAY, January 31, 1995 TAG: 9501310137
SECTION: BUSINESS PAGE: B-8 EDITION: METRO
SOURCE: Associated Press
DATELINE: WASHINGTON LENGTH: Medium
The Commerce Department reported Monday that personal income rose a healthy 0.8 percent in December to $5.89 trillion, after a rare drop the previous month. Earnings for 1994 were up 6.1 percent, the biggest gain in four years.
Meanwhile, spending climbed 0.3 percent to $4.75 trillion last month. It rose 5.7 percent last year, compared with a 5.8 percent increase in 1993, and was the smallest advance since a 3.8 percent rise in 1991.
The figures ``tell us what we already know,'' said economist Paul Getman of Regional Financial Associates, a forecasting service in West Chester, Pa. ``This economy has real momentum. It's hot and getting hotter.''
But others said they see signs the rate of growth is slowing, and that interest rate increases soon will begin to have a bigger effect on consumer spending.
There are ``hints that consumers have turned more cautious in spending on big-ticket'' items, said economist David Jones of Aubrey G. Lanston & Co., a government-securities dealer in New York City. ``It looks like consumers have tightened up on their purse strings with regard to spending on autos.''
Consumer spending represents two-thirds of the nation's economic activity and has propelled the economy's 4-year-old recovery.
The government reported last week that the economy surged 4.5 percent in the last three months of 1994 and grew 4 percent for the year, the strongest growth in a decade.
Analysts predict the Federal Reserve, seeking to restrain growth and check inflation, will boost interest rates for the seventh time in a year during a two-day meeting beginning today.
Monday's income figures compare favorably to inflation, rising more than twice as rapidly as the 2.7 percent increase in the Consumer Price Index last year.
The Commerce Department also said that disposable income - income after taxes - climbed 0.8 percent in December.
Income fell 0.1 percent in November, only the second time it declined last year. Spending in November rose 0.4 percent, revised down from a 0.6 percent earlier estimate.
The combination of incomes and spending meant that Americans' savings rate - savings as a percentage of disposable income - climbed to 4.8 percent in December from 4.3 percent the previous month. The savings rate was the highest since October, when it also was up 4.8 percent.
Boosted by year-end bonuses for auto workers, private wages and salaries increased at a $19.8 billion annual rate in December compared with a $3.3 billion decline in November.
Government wages and salaries rose at a $2 billion rate in December, after gaining $1.2 billion the previous month.
Spending on long-lasting items such as cars and appliances rose 1.1 percent in December to a seasonally adjusted annual rate of $621.1 billion. Spending on nondurable goods, such as food and fuel, was up less than 0.1 percent to $1.421 trillion, and spending on services rose 0.3 percent to $2.703 trillion.
The income and spending figures were not adjusted for inflation. When adjusted, disposable incomes rose 0.7 percent in December, while spending was up 0.2 percent.
by CNB