Income Growth Surges

Thursday, March 1st 2007, 9:00 am
By: News On 6

WASHINGTON (AP) _ Personal incomes rose in January at the fastest clip in a year, bolstered by bonus payments to high-income executives and pay raises for federal workers. The extra income helped support a better-than-expected rise in consumer spending.

The Commerce Department reported Thursday that personal incomes rose by 1 percent in January while consumer spending was up by 0.5 percent. The income advance was the largest since a 1.3 percent jump in January 2006.

The surprisingly strong gains in incomes and consumer spending, the major force driving the economy, came after a series of reports had raised worries about the severity of the current economic slowdown.

In other economic news, the Labor Department reported that the number of newly laid off workers filing claims for unemployment benefits rose by 7,000 last week to 338,000. This increase took economists by surprise. They had been expecting a drop in jobless claims.

An inflation-gauge that excludes volatile energy and food rose by 0.3 percent in January, the biggest one-month jump since last August. Over the past 12 months, this inflation gauge, which is closely watched by the Federal Reserve, is up by 2.3 percent, still above the Fed's 1 percent to 2 percent comfort zone.

The 0.5 percent rise in spending followed an even larger 0.7 percent spending increase in December. With incomes rising faster than spending, the savings rate improved somewhat but still remained in negative territory for the 22nd consecutive month. The January reading was a negative 1.2 percent savings rate compared to a negative 1.4 percent savings rate in December.

The government reported Wednesday that the overall economy, as measured by the gross domestic product, had slowed to a lackluster growth rate of 2.2 percent in the final three months of last year, significantly below an initial estimate of 3.5 percent GDP growth in the fourth quarter.

The weakness reflected steep declines in the once-booming housing industry and in such troubled industries as autos. Also this week, the government reported a big fall in orders to U.S. factories, a drop that raised worries on Wall Street and contributed to a 416-point plunge in the Dow Jones industrial average on Tuesday.

However, Federal Reserve Chairman Ben Bernanke sought to allay investors' concerns with congressional testimony on Wednesday in which he said the Fed had seen nothing in the new data to shake its view that the economy will rebound moderately this year. Stocks posted a modest rebound after Bernanke's testimony.