Americans' incomes and spending up sharply in January

Thursday, March 1st 2001, 12:00 am
By: News On 6

WASHINGTON (AP) _ Americans' incomes rose sharply in January and spending shot up even more quickly as mild weather and deep discounts lured people into stores and malls.

The Commerce Department reported Thursday that incomes, which include wages, interest and government benefits, grew by 0.6 percent, following a 0.4 percent rise in December.

Spending, meanwhile, increased by 0.7 percent in January, up from a 0.4 percent gain in the month before.

The increases in both income and spending were the biggest since September whey they rose by 1.1 percent and 0.8 percent, respectively. January's performance was largely in line with analysts' expectations.

With spending outpacing income growth, Americans' personal savings fell to a record monthly low.

The personal savings rate _ savings as a percentage of after-tax income _ declined to a negative 1.0 percent in January, following a negative 0.8 percent in December. The last time the savings rate was positive was in June, when it stood at 0.3.

Analysts say the savings rate doesn't provide a complete picture of household finances because it doesn't capture gains realized from such things as higher real-estate values or from financial investments.

The government said Americans' incomes were affected by a number of special factors in January. Cost-of-living adjustments to federal transfer payment programs and pay raises for federal employees and military personnel boosted overall income, while less generous federal payments to farmers subtracted from it.

Excluding those special factors, the government said, incomes rose 0.5 percent in January.

The Federal Reserve cut interest rates twice in January, totaling a full percentage point, in an effort to prevent the weak economy from slipping into recession.

In another report, new claims for state unemployment insurance last week rose by 39,000 to 372,000, reflecting in part layoffs in automobile manufacturing and bad weather in some parts of the country.

Fed Chairman Alan Greenspan said one of the biggest factors in determining whether there is a recession is how well consumer confidence holds up during the slowdown.

Consumer spending accounts for two-thirds of all economic activity and was a main engine of the economy's sizzling growth that the country enjoyed until the second half of last year.

In January, spending on durable goods, such as cars, rose by 1.9 percent, after a 1.0 percent drop the month before. For nondurables, such as food, spending rose 0.6 percent, following a 0.1 percent rise. Spending on services, which includes gas and electric utilities, rose 0.5 percent after a 0.8 percent increase. The figures aren't adjusted for inflation and reflect higher prices for energy.