Incomes Up; Spending Grows Slowly

Friday, December 22nd 2000, 12:00 am

By: News On 6

WASHINGTON (AP) â€” Americans' personal incomes rose solidly in November, while spending grew at its slowest pace in six months as stock market volatility, lower consumer confidence and higher energy costs dampened buyers' psyche.

The Commerce Department reported Friday that incomes, which includes wages, interest and government benefits, increased by 0.4 percent last month, matching analysts' expectations. That was an improvement over October when incomes fell by 0.1 percent, buffeted by a big swing in federal farm payments.

Spending, meanwhile, rose by 0.3 percent in November, the weakest pace since May when spending also rose by 0.3 percent. The spending increase was also right on target with analysts' expectations. In October, spending increased by 0.4 percent.

Consumer spending, which accounts for two-thirds of all economic activity, has been an engine of the economy's growth. But consumers have been tightening the belt, contributing to an economic slowdown.

The economy braked to a four-year-low in growth of just 2.2 percent in the July-September quarter, further evidence that America's booming economy is rapidly cooling off.

Consumer spending on big-ticket manufactured items, such as cars, decreased for the second month in a row by 1.2 percent in November. Spending on nondurable goods, such as food and fuel, was flat last month after a 0.4 percent gain.

The Federal Reserve raised interest rates six times between June 1999 and May of this year in an effort to slow the economy and keep inflation under control. Now, economists are worried that economic growth may be slowing too rapidly.

On Tuesday, the Fed shifted its main focus away from fighting inflation through higher interest rates to guarding against a recession. The policy shift signaled strongly that the Fed stands ready to cut interest rates if the economy shows signs of seriously weakening.

The income and spending report also showed that wages grew by 0.3 percent in November, down from a 0.7 percent increase the month before. A decline in wages and salaries paid to government workers tempered wage growth last month.

Disposable personal income, the amount left after paying taxes, rose by 0.3 percent in November after falling by 0.3 percent in October.

The personal savings rate â€” savings as a percentage of after-tax income â€” fell to a negative 0.8 percent, a record monthly low. In October, the savings rate was revised upward to a negative 0.7 percent from a previously reported negative 0.8 percent.

Still, economists say the savings rates isn't as dire as it would seem because it doesn't capture gains households have realized from such things as higher real estate values or from financial investments.

In a separate report, orders to U.S. factories for big-ticket manufactured goods bounced back a bit in November after a sharp plunge the month before.

Orders for durable goods, items expected to last at least three years, rose to a seasonally adjusted annual rate of $210.9 billion in November, a 2.3 percent increase over October. That was a slightly stronger performance than many analysts predicted.

Demand for transportation equipment led the way, with orders rising 9.1 percent last month. Orders for airplanes accounted for much of the strength.

Excluding the volatile transportation sector, which tends to swing from month to month, durable-goods orders rose a solid 0.4 percent, the 10th increase in the last 13 months.

Orders for electronic and electrical equipment, including home appliances and semiconductors, went up by 4.5 percent. Industrial machinery, including machine tools and computers, saw orders rise by 1.1 percent, the first gain since July.

In October, durable-goods orders fell 6.5 percent, according to revised figures, weaker than the government previously reported.