Personal Income and Spending Jump

Monday, October 30th 2000, 12:00 am
By: News On 6

WASHINGTON (AP) — Americans' incomes, boosted by huge federal farm payments, increased by the largest amount in 13 months in September while consumer spending rose at the fastest pace since February.

The Commerce Department said Monday that personal incomes rose by a strong 1.1 percent last month while spending, propelled by heavy demand for durable goods such as autos, was up 0.8 percent.

Economists said the new report showed that while the overall economy slowed sharply in the summer, the all-important consumer sector still had plenty of strength, led by big gains in income that are helping consumers continue to buy with abandon despite rising debt burdens and a weakening stock market.

``Consumers have a ton of money to spend and that is exactly what they did,'' said Joel Naroff, head of a Holland, Pa., economic consulting firm.

The 1.1 percent rise in incomes was the largest since a 1.3 percent jump in October of 1999.

Both months, however, were strongly influenced by federal subsidy payments to farmers who are struggling to cope with weak farm prices.

Without an increase in the federal payments, the personal income gain would have been a more moderate 0.4 percent in September.

Both the income increase and spending gain were well above expectations and some analysts said they would translate into an upward revision in the gross domestic product, the economy's total output, for the third quarter. Consumer spending accounts for two-thirds of total economic activity.

On Friday, the government had reported that the overall economy, as measured by the GDP, slowed to a growth rate of just 2.7 percent in the July-September quarter, less than half the torrid 5.6 percent April-June pace.

This dramatic slowdown had cheered financial markets, who believed it showed that the Federal Reserve is close to achieving its desired soft landing in which growth slows enough to keep inflation in check but not enough to bring on a recession.

Economists said they still expected Fed policy-makers to keep interest rates unchanged at the next meeting on Nov. 15. But they also said Monday's report on incomes and spending showed that economic growth will likely rebound in the final quarter, keeping the Fed on high alert for further rate increases either at the December meeting or early next year.

``Consumer spending is still unsustainably strong,'' said Gordon Richards, an economist with the National Association of Manufacturers. ``Household balance sheets have to be viewed as fragile. Debt loads are high and the savings rate is slightly negative.''

The new report showed that disposable incomes, the amount left after paying taxes, rose by 1.1 percent in September, slightly outpacing the 0.8 percent rise in spending.

That allowed the savings rate — savings as a percent of disposable income — to move slightly off the record monthly low of minus 0.4 percent set in August. For September, the savings rate registered a minus 0.1 percent.

The overall economic slowdown in the third quarter occurred primarily because of big cutbacks in government spending and a slowdown in business inventory building that more than offset a pickup in consumer spending in the summer.

The 0.8 percent rise in consumer spending in September was the biggest gain since a 1.2 percent rise in February.

It was led by a 1.4 percent jump in spending on durable goods, items expected to last three or more years. Analysts had been expecting a strong number for September, reflecting heavy demand for autos.

Sales of nondurable goods were up 0.9 percent, reflecting in part rising energy prices, while sales of services, the category which includes apartment rents, was up 0.7 percent.


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